Jason T. Liberty - Royal Caribbean Cruises Ltd. Richard D. Fain - Royal Caribbean Cruises Ltd. Michael Bayley - Royal Caribbean Cruises Ltd..

Robin M. Farley - UBS Securities LLC Steven Moyer Wieczynski - Stifel, Nicolaus & Co., Inc. Felicia R. Hendrix - Barclays Capital, Inc. Assia Georgieva - Infiniti Research Ltd. James Hardiman - Wedbush Securities, Inc. Timothy Conder - Wells Fargo Securities LLC Brandt Montour - JPMorgan Securities LLC Jaime M. Katz - Morningstar, Inc.

(Research) Frederick Wightman - Wolfe Research, LLC Benjamin Chaiken - Credit Suisse Vince Ciepiel - Cleveland Research Co. LLC.

Good morning. My name is Shelby, 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 Second Quarter 2020 Earnings Call. I would now like to introduce, Chief Financial Officer, Mr. Jason Liberty. Mr. Liberty, the floor is yours..

Thank you, Shelby. Good morning, everyone. And thank you for joining us today, for our business update and first quarter earnings call. Joining me 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. Richard will begin the call by providing a strategic overview of the business. I will then follow up with the recap of our second quarter results.

I will then provide an update on our latest liquidity action and then give an update on the booking environment and our outlook. We will then open up the call for your questions.

Richard?.

upgraded screening of guests and crew prior to boarding, enhanced health processes and protocols onboard, a special focus on addressing the destination we visit and, lastly, procedures for addressing any reports of exceptions. We recognize that this is extremely complex.

Therefore, besides our dedicated internal teams, we, in cooperation with Norwegian Cruise Line, have assembled an expert panel called the Healthy Sail Panel that's tasked to help us develop comprehensive and multifaceted set of enhanced health and safety protocols.

We think they will address the key aspects of our return to service program given the challenges of COVID-19. We've also recently created the position of Global Chief Public Health Officer, who will raise our standards for enhancing and implementing all the protocols and recommendations fleet-wide.

As with all we do, we want our measures to go above and beyond what's expected of us. As most of you know, a ship has very special features and some of those make it more challenging but some of those provide real opportunities. And so we are all looking at our ships with an open mind and an imaginative core.

From the arrival at the terminal with contact less check-in via our app to touchless payment options, we're reviewing every step of the experience.

For example, we have developed a new innovative way to muster where our passengers will be able to view the safety information on their app or interactive stateroom TV and then check-in at their assembly station at their leisure. No more crowds.

This is one small part of the enhancements we're working on, and we'll share many more when the time is right. Now as we work and prepare to sail with the new protocols, there are also some other important positive signs on the horizon.

There are noteworthy advances in treatments, many new drugs are undergoing clinical trials, testing and tracing are ramping up and vaccines seem to be making great progress. Never before has so much coordinated effort, resources, focus and technology been applied to solve such a problem.

While our COVID-19's impact is significant, what hasn't changed is that people, you, our guests and our employees are at the heart of this cruise line. We have been both humble and surprised with the amount of bookings we are seeing for 2021 with literally no marketing efforts, and frankly, very little good news.

You've heard me say before that revenue management is more of an art than a science and that is more true today than ever. But the tone of our bookings, especially, as we get into the second half of 2021, has been encouraging. Our guests want to come back. Families want and need the vacation. That is what makes us innovative, inspired and resilient.

We are more determined than ever to come back strong with new ideas to make sure that our guests feel confident and safe in choosing their vacation with us. I cannot leave this call without expressing my appreciation to the men and women of Royal Caribbean who continue to display such loyalty under such trying circumstances.

This pandemic and the steps that have to be taken to control it are causing massive pain and suffering throughout our company. They are disrupting our lives and our way of life. The impact on our society and our way of life is profound, and that impact will last long after the current crisis end.

We will get through this, and we need to focus our attention in doing so and doing so in a manner that preserves the amazing attributes of cruising. My parent's generation was indelibly imprinted with the experience of The Great Depression and I think our current generations will be imprinted with the many experiences that are affecting us today.

Our task will be to ensure that we are responding appropriately and innovatively to the demands of society as we emerge. Based on the information available to us today, I'm confident that we're taking the right steps to do so.

Cruising has taken the economic impact of the acute phase of this pandemic as hard as any industry I can think of, but we are ready to rejoin the rest of society in the recovery. In fact, once we get past this acute phase, the experience cruising offers has the potential of being one of the ways society comes back together.

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. 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.

With that, I'll pass the microphone back to Jason.

Jason?.

Thank you, Richard. Before I get started, I also, like Richard, want to thank our incredible employees and stakeholders for their dedication and tireless efforts during these unprecedented times. It is really awe-inspiring and very appreciated. So, now, let's get into our results for the second quarter.

The second quarter results illustrate the stunning impact of this pandemic on our business. With all cruises for the quarter being cancelled, we had reported an adjusted net loss of $1.3 billion. The impact of COVID-19 also led to recording a non-cash asset impairment of $156.5 million.

Now having said that, our total net cruise cost declined by more than 40% versus the previous quarter. This decline was driven by the suspension of our cruise operation and also significant reductions in our operating and marketing expenses.

It is important to note, that we continue to incur significant costs in the quarter that relates to repositioning of our fleet for layup, which included the housing repatriation of our incredible crew. Also, we had some revenue and costs for the quarter that is related to Silversea's quarter lag.

When including one-time costs that impacted the quarter and Silversea's quarter lag, our net cruise cost actually declined by almost 60% versus last quarter. We expect these to further decline as our ships settle to their various levels of layup.

Other relevant events that happened since our last call, on the 10th of July, we announced, that we purchased the remaining shares of Silversea. We believe that the timing and value of the deal is right and it was structured in a way that did not impact our liquidity, as the remaining one-third stake was paid in the form of 5.2 million shares.

This move will allow us to accelerate integration efforts and further position Silversea for long-term success. Now, as Richard mentioned this morning, our top financial priority remains ensuring that we are in a strong liquidity position.

To this end, we continue to take decisive action to bolster our position and we ended the quarter with $4.1 billion of liquidity.

The strength of our balance sheet, our assets and our brands has been evidence during this pandemic, as we raised approximately $6.5 billion in new liquidity, since we announced the suspension of our global cruise operations.

Moreover, during this quarter, we completed a 12-month debt amortization holiday for all of our export credit-backed finances and amended over $11 billion of commercial bank and export credit facilities to provide covenant waivers through the fourth quarter of 2021.

With these moves, our upcoming maturities equaled $300 million for the remainder of 2020 and $1.3 billion for 2021. As it pertains to our monthly cash burn, this has also improved sequentially each month, as our ships entered various levels of lay-up.

We estimate that the cash burn will be, on average, in the range of approximately $250 million to $290 million per month during the prolonged suspension of operations, inclusive of the increase in interest expense attributed to the latest capital raises.

As we mentioned in the press release this morning, this number excludes refunds of customer deposits, scheduled debt maturities, commissions as well as the cash inflows and – from new and existing bookings. This range is lower than the second quarter actuals as much of our fleet is now settling into various levels of lay-up.

It's worth noting that our teams are working around the clock to bring this number further down, as reducing our cash burn, is the most cost-effective way to improve our liquidity position. I would now like to provide an update on the business, starting first with our capacity. We have now suspended most of the voyages through the end of October.

To-date, we have canceled 1,545 sailings, which represents, a 65% reduction in our capacity for the year. Regarding our newbuilds, we initially expected to take delivery of five ships between July of 2020 and the end of 2021 but are now only expecting to take delivery of 3 ships during this period.

This includes the Silver Moon, which is planned to be delivered in October; Royal Caribbean Odyssey of the Seas, which is now scheduled to be delivered in the first quarter of 2021; and Silver Dawn, scheduled to be delivered in the fourth quarter of 2021. All other remaining ships on order are expected to be delayed by an average of 10 months.

Now I'll provide an update on what we are seeing in the demand environment for 2021 sailings. Given the current global situation and uncertainty, we've been both encouraged and humbled by the volume of bookings we've been receiving for 2021.

Since our last earnings call, bookings have averaged more than double the levels seen during the first eight weeks of the global cruise suspension. This is quite remarkable, as Richard commented, that this is taking place with very limited to no marketing activity. The cadence of demand has generally been determined by the news cycle.

We received higher levels of bookings prior to the news regarding a surge of COVID-19 cases and a decline thereafter. To this end, bookings have been softer for the first quarter, are quite strong for the summer and back half of 2021, highlighting the continued demand for cruising our core destinations of the Caribbean, Europe, Alaska and Bermuda.

It's important to note that 2021 is benefiting from rebooking activities from guests with future cruise credits, along with those taking advantage of our popular Lift & Shift program. That being said, more than 60% of our bookings received since mid-may have been new bookings.

As a result, our cumulative book load factor is still within historical ranges. Pricing for 2021 bookings is about flat when including the negative yield impact or bookings made with future cruise credits and it is slightly up year-over-year when you exclude them.

Regarding our customer deposits, the balance at the end of June was $1.8 billion with approximately $300 million associated to 2020 sales. Approximately 48% of our guests booked on canceled sailings have requested cash refund.

We expect our customer deposit balance to decline further during the third quarter as we continue to process refunds for recently suspended sales. However, we expect the decrease to be smaller than it was in the second quarter.

In closing, in order to kind of frame the third quarter outlook, I'll just remind everybody that we have canceled all of our third quarter sailings. Having said that, the timing and trajectory of the recovery still remains uncertain, and we are, therefore, unable to provide further guidance for the year.

We do expect, however, to incur a net loss on both a US GAAP and adjusted basis for the quarter and for 2020 fiscal year. The magnitude of the loss will depend on the timing and extent of our return to service. Lastly, I will highlight that by raising cash early and aggressively managing costs, we are prepared to navigate a choppy and volatile period.

Moreover, our people are working round the clock planning a comprehensive return to service strategy while taking care of the financial health of the company. I'm confident that we will emerge from this crisis as a stronger, more resilient company. With that, I'll ask our operator to open up the call for a question-and-answer session..

Your first question comes from Robin Farley of UBS..

Great. Thanks very much. I wanted to ask, some other lines that sourced primarily in Europe are restarting. And I wanted to just think about for Royal Caribbean, whether your restart date would really be just the CDC and cruises out of the U.S.

or would it be potentially something in China or something else that I'm not thinking of? And then, my other question, related to that, kind of part two of that question is, some of the protocols that cruise lines in Europe have put out, there is one cruise line saying that they will test guests before boarding, and some other lines that haven't said that.

Just wanted to get your take on whether that is something that can reasonably be done for US passengers before boarding. Is that kind of a reasonable protocol for US restart? Thanks..

Hi, Robin, it's Michael. As you know, we've suspended our sailings until the end of October, with two exceptions. One of them is the China operations and also Australia.

It may well be possible that we'll resume operations in China and potentially Australia before the end of October, but it's uncertain and I'm not making any statements that that's going to happen but there's some possibility. So that's a possibility that may occur.

As it relates to the protocols, I think what we're seeing in Europe is Europe is certainly a different environment as it relates to how people view COVID and what's occurring with COVID through – clearly Europe, for some time now, there's been a series of interactions and discussions with both the European Union that at the end of July issued guidelines for the cruise industry in terms of returning to sailing and there's been individual discussions between national governments and cruise companies which has resulted in what we've seen in terms of miscellaneous cruise companies returning to operations.

Obviously, through our Cruise Line Association in Europe, we're very engaged in what's happening and we're obviously receiving a lot of feedback. It's a great learning experience for the industry in terms of what's occurring. With regards to the protocols, I think, certainly, testing seems to be very relevant and discussions are underway.

As Richard had mentioned earlier, we have a degree of confidence in the panel that we've formed, and all of our protocols are currently under review with the panel. So testing is part of the thinking, but we have not yet reached a point in our protocols where we're ready to publish and release for discussion.

But it's very likely that testing will occur. We're also seeing in discussions with multiple destinations around the world, which is another component of the return to service, particularly as it relates to Caribbean that testing is very much at the front of how people are thinking about protocols for returning..

Okay. Great. That's very helpful..

Thank you, Robin..

Very helpful. Thank you..

Thanks, Robin..

Your next question is from Steven Wieczynski of Stifel..

Hey, guys. Good morning. Jason, you indicated that 60% of 2021 bookings are new or unique since May. And you expect that net outflow ratio of deposits versus refunds is still going to be negative in the third quarter.

Can you help us think about when that ratio would go more breakeven-ish or even positive?.

Yes. Sure, Steven, and good morning. So first, obviously, when you're in a period of time when you're canceling sailings and for us a little under half of our guests are asking further cash back, those are times where you have more significant outflows.

But when you step back and you look at our cancellation – our cancellation rates for our active sailings are only a tad higher than they typically are. And actually, for 2021, they're actually lower than what we have historically seen.

And so when you're in that type of situation for active sailings, what you're seeing is that we're obviously taking in more than is going out. And so I think it's just getting to a period of time where we're not canceling sailings. And of course, the only – we only have a little under $300 million of customer deposits for the balance of the year.

And as we get further now into the back half of the year, focus on 2021 begins to ramp up more and more, and so my commentary around what we're seeing around bookings for 2021 and what we're seeing in the cancellation rates, I think, is encouraging for that ratio flip..

Okay. Got you. And second question, it's probably going to be for Michael. But the Healthy Sail plan, it seems like you guys are pretty close to wrapping up that study and submitting it to the CDC.

And I guess the question is around what the timeframe looks like once you submit that plan to them? And then when you expect to hear back from them because I think they can still take public comments till mid-September, if I've read that right?.

Yes, Steven. The CDC requested public comment, and the final date for public comment is September 21st. Our panel is working through the month of August. We're hoping that towards the end of the month that we'll have a final position that's signed up on by our panel and we feel is the right plan to return.

So the timing kind of starts to come together with all of the public comment concluding towards the end of September, our work concluding towards the end of August. We think that there's some good opportunity in terms of how that comes together.

But I think it's important to note that there – as we know, there's just a huge amount of uncertainty with how this will play out. And obviously, one of the biggest dynamics is what's occurring with COVID itself.

So we've certainly seen in Europe that as COVID decreased, and particularly, for example, in Germany – Germany was one of the first countries to open up to be flexible in terms of opening up for cruising because it reflected how people were seeing what was occurring with COVID.

So if we're fortunate and everything comes together at the same time, then we're hopeful that we'll be entering into some meaningful dialogue towards the end of September..

Okay, great. Thanks guys. Appreciate it..

Steve, just to amplify on that. There's almost a sense you sometimes get that there's a date, this will happen. And then new protocols and new procedures will come out and then, that's the end of that. And we'll move on.

I think one of the things we have seen about COVID and about the kind of protocols that you have this is an ongoing process and there'll be some things that are coming out of this fall. And then, there'll be more knowledge about prevalence in society, and about treatments and about vaccines.

And so I think, we view this more as a dimmer rather than a light switch. And we think that we'll start out, as Michael says, and we'll start to see some things early fall. But then there will be changes and I think this will be a continual process. You know our mantra is continuous improvement.

And so I think, it would be a mistake to think that it all ends at one point in time..

Okay, great. Appreciate that, guys. Thanks..

Thanks Steve..

Your next question is from Felicia Hendrix of Barclays..

Hi there..

Hi..

So, Michael, maybe you can tell us, who is booking for 2021, maybe the complexion of the cruiser.

Is it – I mean, everyone's kind of talked about the loyalty but is it just your Royal guests? Is it Millennials? Is it generation – if you can just kind of tell us who's booking? And then, just Jason regarding your bookings commentary that the pricing is flat year-over-year, can you also help us understand how that compares to 2019? Thanks..

Hi. Felicia. Yeah, I think, Jason, in his opening comments, mentioned that certainly, when anxiety is relatively high because of COVID then bookings decrease in relation to how anxiety is heightening. We've been conducting consumer research since March.

So we've got a really good sense of how the customer is thinking about cruising vacations, different opportunities and how they're viewing all of that. And what we see is the direct correlation between what's occurring in the state that they live in and how optimistic they are.

And then that, of course, translates into how we see the bookings coming in. So, that's one thing that we've seen. The other thing is that, we did see that younger customers were more inclined to be booking but we also saw a huge response from our loyalty customers.

So, it's across the board and across different brands have a different kind of response from customers. But I would say that the key core for bookings at the moment is loyalty cruises, people who understand what cruising is.

They feel confident and comfortable that once we start getting this behind us that everything will return they're very anxious to go on a vacation. The other observation, which is really my observation, is I'm kind of hopeful that we're going to see a lot of pent-up demand.

And certainly, when you look at our bookings by quarter in 2021, there's a lot of activity as we move into the summer. And I think a lot of people have written off this summer. They've decided that there's not going to be a big summer vacation for all of the reasons that we know. But people certainly want to have a vacation next year.

And I'm kind of hopeful that we're going to see a nice bump in 2021, because people want to go and have a great vacation. And certainly, when you look at our bookings for 2021 the summer, the summer seems to be pretty popular. Thank you..

Thanks, Michael. And on your second point, Felicia, first, I will just start off in saying, I'm looking forward to a vacation next summer. So, happy to get away from all these children. But on the pricing side, our commentary on pricing is actually higher than 2019 levels. So the same time last year is actually a record high.

So we're in line with a record high. And if you exclude the future cruise certificates, which were issued at 125%, we're actually above those record levels..

Okay. That's helpful. And then just, Jason, on the balance sheet, can you – look, you guys gave us all the details on your liquidity which gets you through to almost the end of next year, depending on which end of the range you want to look at. There have been news articles about you looking to raise some more debt.

So just wondering if you could tell us what your balance sheet capacity is both in terms of secured and unsecured perspective?.

Sure, sure. I've seen the articles as well. I'm not quite sure the source of the articles, but I've seen them. So we're obviously in the situation about return to service remains fluid. We continue to look internally at cost, internally at capital, looking at other ways, even in the non-capital market bank world to further bolster our liquidity.

And by that, what I mean is looking at support from the different governments and ETAs that we do business with which have been incredibly supportive. And then when you look on the capital markets side, on the debt side, we've got about $3 billion of debt that we're able to issue.

We still have about $700 million of Opco guarantee that is available to us, if we chose to do something on the debt side, and then the balance of that would be unsecured. Of course, we also have other assets, new ships that are coming online, that we would be able to potentially put some leverage on, or security on as well as those ships come online.

And then, of course, there's other avenues that could be considered. We are really focused not only just getting on to the other side of this crater, but also making sure that we gain our financial health and soon we see metrics and leverage that looks like pre-COVID levels. So, a lot of focus on that as just a general construct on the balance sheet..

Great. Thank you very much..

Your next question is from Assia Georgieva of Infiniti Research..

Good morning, guys. Jason, you mentioned changes to capacity and the delay to newbuild deliveries. Can you expand a little bit on possible ship sales of some of the older vessels, whether the market is there for those? And secondly, when you hopefully come back into service in early November that would be at a limited capacity, I assume.

Can you give us sort of a quantitative figure as to what number of ships you imagine will start sailing initially? Is it 10? Or is it 30?.

Hi, Assia and good morning.

So we've been really, I think, fortunate over the years of being able to sell ships and typically our philosophy on it is, if we don't think we have a good plan for that ship or to be generating sizable returns or it's difficult to make it a strategic fit to our brand, by modernizing it and so forth, we have looked to sell the ships.

And we typically have averaged one or two ships a year. Certainly, in this time, we are evaluating opportunities to sell ships or to take other actions with ships. And I would say, as that information comes live, we would, of course, update the investment community on that.

We're – there's already three ships, and three ships that are related to Pullmantur that are currently in the scrapping process. And so we're evaluating all options. But of course, we want to – we put a lot of money into these ships, these ships do exceptionally well.

And so it's typically a difficult decision to depart with a ship, because they generate so much cash. The one comment I would just make in terms of the ramp-up. And I know I'm sure everybody is eager to hear, is it going to be x ships, y ships, whatever it is.

I think as Richard pointed out a few minutes ago is that, it's going to – it's not going to be a light switch. And it's not going to be a light switch, because it's like, starting any type of operation we've got to ramp ourselves backup.

And I think based off of what we see in terms of demand and protocols and so forth will be the determinant on how many ships come backup on day one. But our goal is to bring that backup. And move that dimmer, as quickly as we possibly can to get our fleet fully back up and running.

And under the safety and health and protocols that everybody would expect us to be doing..

And currently, it seems that you have almost the entire fleet available for bookings. So I imagine some of those bookings may be shifted on a similar itinerary, on a similar date.

Is that fair?.

It's certainly possible, Assia. Again, I think that, as we get more visibility by market, by product, in terms of what's going to come on line and when, we'll more evaluate if changes need be to made whether it's to itineraries, whether it's to ships or whether it's to our new guests on what ship and so forth..

Thank you, Jason. And good luck to everyone..

Thanks Assia. Appreciate it..

Your next question is from James Hardiman of Wedbush..

Hey. Good morning. Thanks for taking my questions.

So briefly, Jason is there any way you could help us break down that $250 million to $290 million of monthly cash burn in terms of sort of what's ship cost? What's the new sort of interest run rate? What's CapEx, et cetera?.

Sure. Well, I'll break it down this way. Similar to before, we had said $250 million to $290 million is the overall. The burn rate if you consider running in SG&A, it's somewhere around the $150 million to $170 million rate per month.

Our brands, I mean, have really done an incredible job and continue to find creative ways to further reduce the cash burn on our ships. And doing it in a way that no way minimizes our ability to get the ships back up and running in a timely way. And so, I think we still see opportunity, for sure, in these numbers.

But essentially running an SG&A is about that range. And about half of the $150 million to $170 million is running and the other half is SG&A..

Okay. Very helpful. And then Michael or Richard, whoever wants to take this, obviously, there's a lot of discussion about the approval process with the CDC. But as I think about handicapping that October 31 date, there's a lot you can control and there's a lot you can't. Obviously, the big thing you can't control is sort of where the virus is.

Maybe speak to what your healthy sail panel is recommending from a virus perspective.

Do we need – I'm assuming we need to get the virus in much better control by October 31 versus where we are today, but how do I think through that? Do we need to get the virus to levels that we're seeing in Europe for you guys to recommend that things are in fact safe? Should we be focusing specifically on the State of Florida? How should we think through all those pieces?.

Yeah. It's a real – as you pointed out, it's a real puzzle, and there's so many variables to consider. It's certainly a component of the thinking as it relates to the protocols of healthy return take into account the prevalence of COVID, not only in the origination, but also in the destination.

So, as you can imagine, one of the projects that we're working on now is a dialogue with all of the destinations, for example, in the Caribbean, South Central America, we formed a task force where literally all of the tourism ministers and many prime ministers from these countries are participating with the FCCA, which is really part of CLIA to start thinking through how we're going to safely resume operations.

So yes, the components of this is, is obviously going to be the prevalence of COVID in the origination and the destination. And I think just common sense tells you that if the prevalence is exceptionally high in a origination market, then that's going to hinder resumption of operations.

But I think it's worth pointing out that certainly, for Royal we – the market is the United States, sure there are certain states that have higher density of customers, but we do draw from the entire country. And of course, we have an extensive international footprint as well. But it is a component of it.

The panel is – they really are experts in their fields, and they are reviewing step-by-step, point-by-point, every single protocol that's placed in front of them by our team of experts. So it's a kind of an ongoing process. But the key point, I think, is the prevalence of COVID will have a determination on the return to service..

Very helpful. Thank you..

You're welcome..

Thanks James..

Your next question is from Tim Conder of Wells Fargo..

Thank you. And thank you, gentlemen, for all the color. And Jason and Michael, totally agree with the pent-up demand. There's probably some good cruise lines as well as the places with private islands that can accommodate some of those needs. Move on to some – just sort of following on some of the questions.

When we get back to normal, let's just call it that, how should we think about, Jason, some of the structural cost here, both on the cruise operating side and the SG&A relative to maybe levels that we saw in 2017, 2018, 2019?.

Yeah. Well, I think in terms of – on a structural standpoint, we've obviously – we've taken some G&A actions that we think will be permanent changes in our cost structure. On the running expense side, we continue to identify ways to save money.

But of course, the product will scale up accordingly based off of the load factors and so forth over time, going back to the dimmer example. There will also be – and of course, we don't know exactly what that number is going to be.

There's going to be additional costs that relate to some of these protocols, which some of it will be temporary and some of it might be for a more sustainable period of time that will be out there.

But our goal is to make sure we're delivering the very best vacations in the world, continue to have strong Net Promoter Scores, but trying to do all of that while getting ourselves back to pre-COVID margins and better..

Okay.

Is there any way, Jason, we can sort of think about some of those costs that could be structural, whether – whichever those years is the best to benchmark off of as we go forward? And then maybe in 2021, if you're – let's assume you're ramping up throughout the year, would we expect to be obviously below what we're seeing in 2020 on an ALBD basis, but still above that 2017, 2018, 2019 on an ALBD basis?.

Well, I know – and when the time is right, Tim, we will look to try to provide guidance on how we see our cost structure developing. I would take my comments earlier about returning to financial health and getting back to kind of pre-COVID levels as the need for us to find ways to become more and more efficient here over time.

But I think it's too early to communicate exactly what that would be. And of course, on a load factor basis and – it's going to be a ramp-up. I'm sure people like to have a specific number.

But again, I think we look at until we have better visibility, it will be a little bit of time here before we start kind of guiding on the volumes and how those volumes relate to staffing levels and protocols that will be necessary in the early days..

Okay. Fair. Thank you, gentlemen..

Thanks, Tim. Thanks for trying..

Your next question is from Brandt Montour of JPMorgan..

Good morning, everyone. Thanks for taking my questions, and thanks for all the details today.

Just curious as you look at next year from a marketing perspective, I know there's a lot of moving pieces, but assuming that you do get a lift of the no-sail order in 2020, how do you think that your strategy for, sort of, wave season marketing could change versus prior years and prior year strategies? Thank you..

Hi, Brandt. Yeah, I think, it's been interesting ironically how well we've been doing with our bookings with almost no marketing spend. So that's caused a lot of anxiety with our CMO and our marketing organization because the bookings have been good without much investment.

I think the answer really is, there's going to be a – kind of a natural relationship between the amount of investment in marketing when we return to service and the pace of the return to service. So, back to both Jason and Richard's point that this won't be a light switch, this will be a phased-in approach.

And I think our marketing will phase in over what I hope will be a relatively short period of time. But I think once we get a real sense of how we're going to be returning to service in terms of the phasing, then our plans will reflect that. And again, to my previous point, I'm also a believer that there's pent-up demand.

So, we're feeling quite optimistic about how that may play out..

Thank you for that.

And then just a follow-up, are you guys looking at any contingency plans sort of under a scenario where we get to prime booking season for summer 2021, and let's say, Americans aren't willing to get on a transatlantic flight? Maybe talk about the depth and breadth of your European local marketing arm and if you think you could or would plan European-only sailings?.

Yes. It's a great question. We literally have worked through multiple scenarios on possible outcomes, applying different and multiple assumptions to these different scenarios. So it's a possibility. We hope that doesn't play out, but we have built plans for what you just asked about and other types of possible outcomes..

Right. Thanks all and good luck..

Thanks, Brandt..

Thank you..

Your next question is from Jaime Katz of Morningstar..

Hi, good morning. Thanks for taking my questions. I'm curious if you have any color on the resumption of cruising with TUI. I think they started a few weeks ago, maybe two weeks ago.

And has there been any feedback since that process has resumed?.

Yeah, sure. Good morning, Jaime. It's actually, both our TUI brand as well as Hapag-Lloyd have resumed. In both cases, the protocols that have been employed have one been well received and also seem to be managing the health aspects of this. And so, reports have been very good.

I think the thing that has been one of the better outcomes is customer surveys and Net Promoter Score and so forth have been relatively high here.

And so, while we've installed some more protocols, social distancing and so forth, what we have seen is that we've been able to put on an experience, a vacation that is resonating very well with our German customers.

So it's still early days, and the product is building up more and more, and they haven't stopped anywhere yet, but they've been able to put on great vacation experiences. They've been able to see beautiful things beyond the fresh air, and that has – that's resulted in very positive feedback from our customers..

Okay. Thank you. Go ahead..

I think, I would just add one thing. It's important to understand, we're all still learning about COVID-19 and the implications. And so, the opportunity to see what does happen under certain circumstances is really helpful to all of us as we're going through this process..

Okay. And then the impairment, I don't think it's delineated what that is allocated to last quarter. I think the impairment was across all three brands – or sorry, across Silversea.

Was that Silversea again this quarter? Or was there something else?.

No. This had more to do with Pullmantur – well, some of it was Pullmantur-related as that business is under – being restructured. There's also – we had some ships that we believe relative to the number of years they have left to recover their asset levels, there was some impairment there.

And then, there were some things that also kind of flushed through in other joint ventures that we have and collections that we don't think are possible for ships that we have sold, but it was under seller financing for..

Okay. Thank you for the clarifications..

Yeah..

Your next question is from Greg Badishkanian of Wolfe..

Hey, guys. Good morning. It's actually Fred Wightman on for Greg. Richard and Jason, you guys have both talked about the stronger bookings in the back half of 2021.

I'm wondering if you could just put a finer point on that, what is sort of the relative bookings strength you're seeing in that summer and beyond period relative to the first half of the year?.

Yeah, sure. So one, I would say it's – it bleeds a little bit more into also the front half of the year. So you see this kind of line as you kind of get into the early-to-mid part of the second quarter, where there's just strong demand for the season and beyond.

It's almost what the consumer has somewhat kind of focused on that, that's when it will be time for them to deal with this pent-up demand that Michael had talked about. And if you look at it by product, it really is across all of our core products. So there's strength in the Caribbean, our European products, Alaskan products and so forth.

So it's not just one thing, but it's really clear as we get kind of mid-Q2 and beyond that there's high demand and our consumers are willing to pay at or above these historical levels..

Okay, great. And then just on that pricing comment, cumulative 2021 pricing did soften a bit versus what we saw last quarter. I think you guys have suggested that would be the case.

But should we continue or should we expect that cumulative pricing number to continue to come down a bit as more and more of those FCCs are redeemed? Or should it be more stable?.

Yeah, really good question. So, I think on the new bookings side, I mean, the patterns that we're seeing is with strength and our guests willing to pay more than what they paid for same time last year or in 2019.

But as the FCCs get redeemed, we would expect that, that's going to have an impact on those APDs, because they're effectively a 25% discount on the APD because of the application of that cruise credit. So I do think that there will be continued pressure on that APD benchmark just because of the application of those FCCs..

Great. Thank you..

Sure..

Your next question is from Ben Chaiken of Credit Suisse..

Hey, how is it going?.

Hey, Ben..

You helped with some of the customer cohorts previously. Is there anything unique about the booking channels that people are using for 2021? For example, you mentioned pent-up demand, whether it's repeat cruisers or, I think you mentioned loyalty members.

Is there any mix change you're seeing between direct versus travel agent, for example?.

Hi. Ben. No, everything is pretty much normal in terms of how bookings are coming through the various channels. So we've seen nothing yet that would make you think there's some kind of trend change occurring. I think one thing is true that our distribution of many of our travel partners are obviously stressed, because of the situation.

So that's something that we're aware of. Obviously, we're trying to be as supportive as we possibly can to our travel partner community. Because, when all of this does get behind us, we'll need them and want them to be booking for us, but no, no noticeable change at the moment..

Got it. Thanks..

Great..

Your last question comes from Vince Ciepiel of Cleveland Research..

Hi. Thanks for taking my question. Curious, I wanted to circle back on the FCCs.

I don't know if you'd specified how much of the $1.8 billion in customer deposit was FCC-related? And then separately, as folks start to redeem their FCCs, maybe once there's a clearer path back to sailing, what percentage of folks who take FCCs are applying them to a specific sailing right now?.

Sure. So if you kind of think about that $1.8 billion of customer deposits, about $900 million of it or so is our FCCs and about 40%, 45% of those are non-refundable FCCs. And so, so far, there's been about a third of those FCCs that have been applied.

And we also have – well, although – there's about a third of the 125% one and then of course our Cruise with Confidence program, which are the non-refundable ones, there's been about 20% that has been unapplied today..

Thanks..

Okay. Well, thank you for your assistance today, Shelby, with the call. We thank you all for your participation and interest in the company. Carola will be available all day, for any follow-ups you might have. And we all wish you all a very great day. Be healthy. Thank you..

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect..