The stock of Royal Caribbean Cruises (RCL) , the giant ocean liner company, roared on Monday even as it reported a 93% drop in revenue and a net loss of $1.6 billion. It was a confounding run and it probably isn't finished because Royal Caribbean has $4.1 billion in liquidity and pretty much unlimited borrowing power.
Most important, Royal Caribbean has incredibly healthy bookings for 2021, pretty much the typical amount it would have at this time except for, even better, 60% of the bookings are from new people. The company, I think rather astoundingly, has $1.8 billion in customer deposits on hand although some most definitely will cancel if the Centers for Disease Control (CDC) keeps the company's ships from sailing, as has been the case with seven suspensions so far.
Cruise line CEOs as a cohort are an unusually good and gregarious sort, truly among the best there is, and Richard Fain, the CEO of Royal Caribbean, is no different. He made a crucial point about how this company is in business: "With our strong brands, great reputation and a solid balance sheet we've been able to access the capital markets and to negotiate with governments, vendors, shipyard operators and others to improve our financial terms."
But the always gracious Fain left out the real reason why this company is still in business, still employing 43,000 people and still booking 2021 like mad: the Federal Reserve. A truly magnanimous host would have thanked Federal Reserve Chairman Jay Powell personally for his gutsy decision to backstop pretty much everyone that could have had a deleterious impact on our unemployment numbers.
By making it clear that he basically would defend weaker paper, something that was demonstrated when Royal Caribbean rival Carnival Corp. (CCL) was able to raise $4 billion at 11.5% at the end of March, admittedly a lot higher than the 1% it paid in October 2019, Jay Powell enabled a whole series of companies to raise money.
I know as we rally to all-time highs there are many who blame the rally on the Fed. These same people would have accepted the loss of Carnival, Norwegian Cruise Line Holdings (NCLH) and Royal Caribbean. They would have decided that it's just too bad that more than 100,000 would lose their jobs because there's no vaccine yet.
Powell, on the other hand, decided the jobs should be saved versus the laissez faire attitude of letting them go. The price? All-time equity highs. I don't know, I would take that deal any day of the week.
I, for one, am grateful that Powell stood up to those who would have put whole industries in receivership, causing a tremendous dislocation and an even larger bulge to unemployment. Thank you, Jay, for having a heart.
I know a lot of people thought that no one would ever cruise again, that cruise ships were incubators for Covid. But the cruise lines are banding together to come up with protocols that I think could work. More important, as Fain says, "Humans are social animals and cruising will, in the near future, be able to offer people a meaningful and enjoyable way to safely fulfill this basic human need." He continues, "People want to be together and we will be ready to welcome them aboard. And our bookings for next year indicate that our guests feel the same."
Royal Caribbean's great crew will be ready to welcome them onboard not just because it is a great company, but because the Fed chief essentially guaranteed their debt. What a lucky break this nation has been given to have a Fed chief who rejects the orthodoxy and recognizes that Covid isn't the fault of the cruise ships and that they are responsible actors that are, indeed, worth saving.
