Royal Caribbean cruise ship owner arrives at TPG: Heavy debt won’t stop us from ordering new ships

Get ready to get excited again with new ships.

In an exclusive, one-on-one interview with TPG over the weekend, Royal Caribbean Group’s president and chief executive officer, Jason Liberty, suggested the company would not be withdrawing orders for the cruise lines. in the coming years, despite the company’s record debt levels. Accounting balance sheet.

Although the Royal Caribbean Group has paused new ship orders since the COVID-19 pandemic began in early 2020, it still plans to launch new ships for all its brands with steady pace over the next decade, Liberty suggests in the interview — taking place on the new line Wonders of the Sea. This means that new orders are likely to arrive relatively soon.

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Royal Caribbean Group is the parent company of Royal Caribbean, Famous people and silver sea yacht. The company also owns a stake in Germany’s TUI Cruises and Hapag-Lloyd Cruises.

Liberty told TPG: “Our ambition is to continue to grow each of our brands in their segments, because we think the segments that we focus on… have a lot of opportunity for them. surname”. “They all have very low penetration globally.”

All the major cruise companies, including Royal Caribbean Group, have taken on huge debt to stay solvent during the COVID-19 pandemic, as cruises come to a halt and companies This is a loss of hundreds of millions of dollars every month.

Royal Caribbean Group’s long-term debt during the pandemic has skyrocketed to around $19 billion – more than three times its 2017 level.

To remedy this situation, travel companies have said in recent meetings with Wall Street analysts that their focus over the next few years will be on using their (now recovering) profits. to bring debt down to a more normal level. That has led some yachting fans to worry that the days of nonstop launches of exciting new ships may be coming to an end.

But Liberty hinted to TPG that the debt payments won’t be so large that the company doesn’t have new ships in its plans for the coming years. Some profit streams will also continue to be allocated to new ships.

Making things easier, according to Liberty, does both: The company has “a bit of a buffer” when it comes to new ships on the way – ships that have been ordered and financed in advance. epidemic.

Related: Time to celebrate Royal Caribbean’s new Marine Wonder

The Royal Caribbean brand has four ships on order for delivery in 2023, 2024, 2025 and 2026 respectively – three of which will be part of the series. Brand new ship of record size. The Celebrity brand has two ships on order for delivery in 2023 and 2025. Silversea has two ships on track in 2023 and 2024.

In short, the new shipbuilding system at Royal Caribbean Group, minus new orders, won’t really start to run out until 2026. That means there’s no rush to order new ships right away. instantly.

As Liberty noted, there has been a frenzy of cruise ship orders in the years leading up to the pandemic, partly because construction slots at major shipyards around the world have been filled for many years. last year. Royal Caribbean and other companies have closed more pre-orders for ships than usual.

Related: 6 types of Royal Caribbean ships, explained

Until about 2015, “when ordering ship must order [it] Liberty notes: “Three to five years before you want it.” Liberty noted. “And then what happens is the market for new ships really starts to heat up, and you have to order the ships after six or seven years.”

As a result, buffers in new vessels have been ordered, he said.

“Our Order Book [for the next few years] is actually quite complete, not only [for] Royals, Celebrities and Silversea [brands] but also TUI Cruises and Hapag,” Liberty said.

When the time comes for the Royal Caribbean Group to order new ships, the company will be supported by so-called “export credit” financing that works for new ship orders, Liberty suggests. It is a type of financing that does not require travel agencies to spend a lot of money up front.

Related: 5 best destinations you can visit on a Royal Caribbean ship

“The great thing about the cruise business is that with export credit financing, you tend to spend very little money,” Liberty notes.

Much of the cost of a cruise ship is due on the day it is delivered to a cruise line, which can be many years after it is ordered.

“You receive the ship’s cargo, and [while you pay for most of the cost then]you instantly have EBITDA” to help pay for it, Liberty notes.

EBITDA, which stands for “earnings before interest, taxes, depreciation and amortization”, is a financial term related to profits.

Liberty said the company’s decision-making process on new orders in the coming years will have less to do with the company’s debt levels and “more on our strategy. It will focus more on expenses.” current shipbuilding costs and profit profile that we need to see in order to book a ship.”

When it comes to capital expenditures, Liberty said, the high levels of debt the company currently has will have a larger impact on other, more discretionary projects that require large expenditures, such as overhauling older ships to make them more modern.

Just ship the order as “not applicable [when it comes to capital spending]. More pressure around arbitrary [capital spending]”, he said. “It’s not that we don’t want to invest. That’s a higher threshold for our investment because we now have less discretionary capital.”

Liberty said the company was lucky to have done so many overhauls and updates of old ships just before the pandemic, when it had enough money.

“Most of our fleet has been modernized during that time, so we don’t really need to modernize much,” Liberty said.

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