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News & Media
Apr 28, 2021

Navigating Uncharted Waters

As part of the 2020 Dean’s Speaker Series, UNC Kenan-Flagler Dean Doug Shackelford sat down virtually with Royal Caribbean Cruises EVP and Chief Financial Officer Jason Liberty.  What follows is an excerpt from that conversation.  Watch the full event, here.

Dean Shackelford: Walk us through the early decisions Royal Caribbean Group had to go through at the start of the pandemic.

Jason Liberty: Very early on, a few things were really obvious to us. Having a very strong balance sheet, having unencumbered assets, and really strong relationships with our banking group and investor group paid huge dividends for us. We had to immediately look at how you go from looking at a P and L on a balance sheet all the time, where you’re forecasting those details, to really focusing on real cash flow, not cash flow statements. How is our cash going to burn and what actions do we need to take in order to deal with that? Some of those actions are raising capital, which, of course, during that time, as you can imagine, nobody was really lending money. And so we found creative ways with our banking group to be able to do that, which did not put us in a desperate situation to raise capital. We had a pretty robust capital expenditure program, so we immediately put almost all of that on hold. And then we took our burn rate down in terms of what we were spending in order to minimize the cash burn on our business. And all of that had to be done within a 30-day period of time.

The other point I’ll just add is, I think that actions the government, especially the Fed, took really loosened up the capital markets and allowed companies like ours that were at the epicenter of this crisis to access the capital markets enough to be able to get the flywheel started, to be able to ensure that we could get on the other side of this.

Dean Shackelford: Can you elaborate on how the relationships Royal Caribbean Group has made over the years were critical to helping you through the pandemic?

Jason Liberty: Because we’re a very capital-intensive business, we have a pretty large banking group, we have a pretty sophisticated group of investors that invest in us. And we have for a very long time, philosophically, tried to treat everybody like a partner, not as a commodity. So we weren’t bidding out our financings in the past; we would make sure we were rotating and understanding what was important to our banks. And so, when it came time, our bank group really came together and they picked us. They could have picked any of our competitors. They picked us to lend the money to straight from the bank, which creates great risk for them. But I think when you treat your stakeholders with respect and as a partner, plus you’ve got incredible brands, great assets, a great business, and people start to make their choices on where they’re going to bet, I think our bank group would have said that, while it’s not a no-brainer in a situation like that, they knew who the company to bet on was.

Dean Shackelford: Even during the pandemic, you’ve been operating one cruise ship in Singapore and a few in Europe and the Middle East. Tell me what you’ve learned from this in terms of getting back on a regular footing globally and how things look for travel going forward.

Jason Liberty: Every part of the world looks at COVID a little bit differently…We, working with a panel of experts that includes the former head of HHS and the former head of the FDA, put together a set of protocols, because we wanted to make sure that, especially in a period of time when COVID was so prevalent in society, we could be the safest place on earth. So we started off with a series of voyages for the Saudis with our Silversea brand, and it included testing of guests before they got on the ship, testing guests when they got off the ship, social distancing, and capacity at lower levels. And we saw the same thing – that the protocols were working, the level of COVID on our ships was de minimis. And when we did have a case, our ability to abate spread was dramatically better than anything you see happening on land.

In the early days of this virus, nobody knew exactly what to do. Our competitor had an unfortunate set of circumstances very early on that, I think perception-wise, made it seem like the cruise world was more susceptible to disease and other things. In reality, because of things like norovirus and so forth, our sanitation protocols were world-class; you couldn’t find something like it on land. So a lot of this was just evolving, getting better communication around it, and testing was also important. So the flywheel is starting for us, and there’s definitely going to be cruising taking place in the U.S. in June.

Dean Shackelford: How difficult is it to start back up with a ship when things have been shut down for months, to get a crew back and get operations up and flowing?

Jason Liberty: We have 75,000-plus employees. The vast majority of them are on the water. We have maintained really strong dialog with them, communicating with them on a regular basis. We’ve also had about a year to understand how we were going to bring up 60 ships as soon as possible. So it comes with extraordinary challenges – we typically bring up about three new ships a year – so bringing up that many is going to be a significant task, which we have the plans for and we’re ready to go. But it’s positioning the ships, making sure people are being tested, kind of going through what is possible from a vaccination standpoint, and getting the flywheel started. Fortunately, this will not be a light switch, it will be a dial, as we ramp up capacity. And so that alleviates a little bit of the pressure in terms of bringing the crew on.

The other point I’ll make is that we made a decision early on that we wanted to keep the ships in a warm state. So, a little bit like the body; if you just put your body in a recliner for a year, the answer when you try to step out of that recliner is not going to be a good answer. So we’ve kept the body moving during this period of time, minimal crewing, but making sure that the pipes and of all the things that work on a cruise ship work effectively. We’ve been we’ve been doing that this entire time. And so we made other tradeoffs, in terms of our burn rate versus putting our ships in a state that could be very costly and somewhat unpredictable as we bring the fleet back up and running.

Dean Shackelford: Forsome time now, the industry has been moving toward bigger ships with more amenities. Do you see this continuing once we get on the other side of the pandemic?

Jason Liberty: A lot of it comes down to the public space per passenger. And we have since the beginning overindexed on the amount of public space per guest. And so while the number of people might sometimes sound high, the reality is that these ships are significant in size. And there’s a lot of space for passengers to be able to do their activities without feeling like they can’t social distance. And so for us, social distancing is very doable.

I think the interesting thing, and we’ll see how it sorts out, is how the consumer will travel coming out of this. I think it’s very likely that guests will want to stay a bit closer to home. They’re going to have to warm themselves back up to traveling anywhere and everywhere in the world. Fortunately for us, our sourcing is global, our ships are very mobile. And so our ability to flex to that is generally easy for us to do.

Dean Shackelford: You’ve made extensive use of technology in implementing your safety measures. How else is technology changing how the cruise industry operates?

Jason Liberty: The first thing I’ll say is, we didn’t let a good crisis go to waste. When the car’s not moving, the ability to change the tires or parts is a little easier. We had set out about three, three and a half, years ago on a digital transformation to take friction out of the guest and crew experience. So there’s a series of commerce tools, especially for our onboard revenue activities, that we’re now going to be rolling out as we come back into service. We’ve also been able to use that footprint that we created to help us with things like contact tracing. One of the reasons we built the confidence of a lot of these governmental agencies during COVID is that we have, working with partners, designed technology that allows us to do contact tracing not in hours, but in minutes.

If you were to ask, pre-COVID, what were we obsessed about, especially in terms of where we can be disrupted and what we were really focused on, was the digital commerce world, because we didn’t want to be a product on Amazon’s shelves or Google. We wanted to maintain brand identity and be kind of omnichannel, in terms of how we go to market. And in order to do that, we have to stay very relevant commercially on the digital front. We’re a company that has a lot of legacy systems, but we’ve also had an opportunity to move some of the valves around during this period of time. How customers shop will obviously be different than it was pre-COVID. That’ some of what’s going to change, and we certainly feel we’re ready for it.


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