What do Celebrity do to manage their financial situation

[C4HCG]

I think we all know they have huge debt, and that they need a plan to get out of it. Seems they are trying a variety of things to start to try to manage this, increasing cruise fares, new charges, reducing menu at OVC, etc.  None of these are popular here (understatement 😁) but does anyone have any suggestions. It’s easy for us to criticise. And I know people here are not highly paid Celebrity Executives but I have sympathy for them, they face an almost impossible problem not of their making, all down to Covid.

[NorthStarStateCruiser]

I think what they are doing with the food is actually an intentional area they are focus on. It allows them an opportunity to increase customer satisfaction while reducing costs. They can increase the quality of the individual dishes served to guests by steering the majority of guests to what they are putting the most effort into, which appears to be the MDR. Adding a room service charge or reducing OVC dinner offerings, although unfavorable to some guests, steers passengers to what Celebrity is trying to push as their better food experience for guests to enjoy. They have much better control of food quality and guest experience in the MDR or specialty restaurants than in the OVC or via room service.

 

Their biggest concern is getting ships full rather than having guests pay more. The easiest way of doing this is by focusing on guest satisfaction to increase the repeat customer business.

[NutsAboutGolf]

22 minutes ago, C4HCG said:

I think we all know they have huge debt, and that they need a plan to get out of it. Seems they are trying a variety of things to start to try to manage this, increasing cruise fares, new charges, reducing menu at OVC, etc.  None of these are popular here (understatement 😁) but does anyone have any suggestions. It’s easy for us to criticise. And I know people here are not highly paid Celebrity Executives but I have sympathy for them, they face an almost impossible problem not of their making, all down to Covid.

 

Companies carrying massive debts is nothing new and there isn't a NEED to get out of it quickly

 

It seems what they're trying to do is to further differentiate the Retreat as it seems to be immune from the new fees and cuts

[NorthStarStateCruiser]

1 minute ago, NutsAboutGolf said:

It seems what they're trying to do is to further differentiate the Retreat as it seems to be immune from the new fees and cuts

But Celebrity is already very good at selling out these Retreat cabins. Why would they put even more focus on them?

[NutsAboutGolf]

17 minutes ago, NorthStarStateCruiser said:

But Celebrity is already very good at selling out these Retreat cabins. Why would they put even more focus on them?

 

All depends how you look at it, another way to look at it is they're devaluing the non-retreat rooms which they are not selling out

[NorthStarStateCruiser]

3 minutes ago, NutsAboutGolf said:

 

All depends how you look at it, another way to look at it is they're devaluing the non-retreat rooms which they are not selling out

Yes, which I agree is not a good strategy.

[Los_Pepes]

26 minutes ago, NutsAboutGolf said:

 

Companies carrying massive debts is nothing new and there isn't a NEED to get out of it quickly

 

It seems what they're trying to do is to further differentiate the Retreat as it seems to be immune from the new fees and cuts

The top three major cruise lines took on incredible amounts of additional debt during Covid. RCL even issued 11% junk bonds last year to restructure existing debt. 

 

Edited January 8, 2023 by Los_Pepes

[prmssk]

28 minutes ago, NutsAboutGolf said:

 

Companies carrying massive debts is nothing new and there isn't a NEED to get out of it quickly

The amount of debt, the year and a half of no revenue, another year plus of restrictions and lower demand where they weren't even breaking even.... none of this is something typical companies face.  

[NutsAboutGolf]

9 minutes ago, Los_Pepes said:

The top three major cruise lines took on incredible amounts of additional debt during Covid. RCL even issued 11% junk bonds last year to restructure existing debt. 

 

 

 

 

 

 

 

Big corporations being is debt is nothing new, assuming they're able to pay their obligations there isn't really a this assumed dire NEED to get out of debt quickly; just sharing some in debt corporation data from 2019 to show debt is not uncommon:

 

 

[LB_NJ]

1 hour ago, C4HCG said:

I think we all know they have huge debt, and that they need a plan to get out of it. Seems they are trying a variety of things to start to try to manage this, increasing cruise fares, new charges, reducing menu at OVC, etc.  None of these are popular here (understatement 😁) but does anyone have any suggestions. It’s easy for us to criticise. And I know people here are not highly paid Celebrity Executives but I have sympathy for them, they face an almost impossible problem not of their making, all down to Covid.

In my opinion it is very easy, reorganization through Chapter 11 of the United States Bankruptcy Code and continue to operate as debtor in possession corporation.

 

This allows the company to shed its crushing debt and operate more freely.

[NutsAboutGolf]

13 minutes ago, prmssk said:

The amount of debt, the year and a half of no revenue, another year plus of restrictions and lower demand where they weren't even breaking even.... none of this is something typical companies face.  

 

Totally agree

[Los_Pepes]

14 minutes ago, NutsAboutGolf said:

 

 

 

 

 

Big corporations being is debt is nothing new, assuming they're able to pay their obligations there isn't really a this assumed dire NEED to get out of debt quickly; just sharing some in debt corporation data from 2019 to show debt is not uncommon:

 

 

The conversation was about cruise line debt not VW or anyone else. Your comment of "Companies carrying massive debts is nothing new and there isn't a NEED to get out of it quickly"  was in response to the comment "I think we all know they have huge debt, and that they need a plan to get out of it." 

 

RCL tripled their debt during Covid and issued junk bonds. That is new and no company wants to pay 11% interest for very long. RCL carried roughly $7.5b in debt on average for the 10 years going into Covid and it ballooned to $25b in 2022. 

Edited January 8, 2023 by Los_Pepes

[Shiba_Lover]

If you actually want to find what the executives intend to do about their debt, you can look at their shareholder notes.  Since it is a publicly held company, they post their announcements and plans.  What you won't find are the details of how they plan to achieve them.  In other words, you still see "we are going to make sausage" but you won't find"here is how we are going to make sausage" at the ground level.  Speculacting  here is not really going to add anything you can't find on countless other threads.

[grandgeezer]

7 minutes ago, LB_NJ said:

In my opinion it is very easy, reorganization through Chapter 11 of the United States Bankruptcy Code and continue to operate as debtor in possession corporation.

 

This allows the company to shed its crushing debt and operate more freely.

I suggest you read up on the pros and cons of a company filing chapter 11 bankruptcy. It’s basically a last ditch resort to stay in business. It does not allow them to completely shed their debt, they have to come to some type of agreement with the creditors on how to continue. Who would ever do business with a company that defaulted on possibly millions of dollars of debt?

Fool me once, shame on you, fool me twice, shame on me.

[Shiba_Lover]

The reason more focus is out on Retreat... I suspect they earn exponentially more money on one retreat room than on X number of non Retreat rooms.  Made up scenario, but if my ROI on one Retreat room is 30%, and my ROI on a concierge room is 8%, I need to sell 4 concierge rooms.  If my ROI on an inside is 3%, I need to sell 10 and so on.   Again, just made up numbers and my guess.... But they put more value on Retreat because it is indeed more valuable to them, in monetary terms ( please do not make this about valuing customers - just speaking about money/ earnings)

[NutsAboutGolf]

10 minutes ago, Los_Pepes said:

The conversation was about cruise line debt not VW or anyone else. Your comment of "Companies carrying massive debts is nothing new and there isn't a NEED to get out of it quickly"  was in response to the comment "I think we all know they have huge debt, and that they need a plan to get out of it." 

 

RCL tripled their debt during Covid and issued junk bonds. That is new and no company wants to pay 11% interest for very long. RCL carried roughly $7.5b in debt on average for the 10 years going into Covid and it ballooned to $25b in 2022. 

 

I've expanded the conversion that a corporation like RCG being in debt is not uncommon.  What are folks wanting to hear that they don't already know?  Pricing will continue to rise, executive compensation will continue to rise and products/services for passengers will decline

[NMTraveller]

54 minutes ago, Los_Pepes said:

The top three major cruise lines took on incredible amounts of additional debt during Covid. RCL even issued 11% junk bonds last year to restructure existing debt. 

 

Well if you look at a good year, say from 2016 to 2017 you will note that X paid down about 2 billion in debt.  If they put new ship builds on hold and bring their business back to 2016 profitability, they can pay their debt down to pre-covid levels in 5 years.  I do think that the new ship builds have been cutting into profitability.

 

Issuing junk bonds is more common than most would think.  Southwest Airlines issued junk bonds at a high interest rate to expand their business and routes.  I profited nicely from both their stock price rise and junk bonds paying a heft interest rate.

 

Now nickel and diming customers, ticking them off, and degrading the experience is not a good business model.

Edited January 8, 2023 by NMTraveller

[BazingAu]

I work at a large corporate travel company (billions in sales). Took on a ton of debt during the pandemic, and did not nickel and dime our customers after people/companies started returning to travel. Our executives and management all took pay cuts! We are a customer-first company and the approach that RCL takes versus those of the company I work for - it’s very evident that philosophy and corporate culture is completely different.

[LB_NJ]

12 minutes ago, grandgeezer said:

I suggest you read up on the pros and cons of a company filing chapter 11 bankruptcy. It’s basically a last ditch resort to stay in business. It does not allow them to completely shed their debt, they have to come to some type of agreement with the creditors on how to continue. Who would ever do business with a company that defaulted on possibly millions of dollars of debt?

Fool me once, shame on you, fool me twice, shame on me.

US airlines used to do this and survived (eg United Airlines).  It is not always a last-ditch effort.  Hertz has some other problems, but bankruptcy helped them.

[Los_Pepes]

12 minutes ago, NMTraveller said:

Well if you look at a good year, say from 2016 to 2017 you will note that X paid down about 2 billion in debt.  If they put new ship builds on hold and bring their business back to 2016 profitability, they can pay their debt down to pre-covid levels in 5 years.  I do think that the new ship builds have been cutting into profitability.

 

Issuing junk bonds is more common than most would think.  Southwest Airlines issued junk bonds at a high interest rate to expand their business and routes.  I profited nicely from both their stock price rise and junk bonds paying a heft interest rate.

 

Now nickel and diming customers, ticking them off, and degrading the experience is not a good business model.

Excellent points. One thing to consider is that they are paying a much higher interest rate with lower passenger loads. Until occupancy gets to Pre-Covid levels and they restructure to an overall lower interest rate, they will struggle to pay down $2b per year. Until then the only other recourse is reduction in services. 

[Los_Pepes]

21 minutes ago, BazingAu said:

I work at a large corporate travel company (billions in sales). Took on a ton of debt during the pandemic, and did not nickel and dime our customers after people/companies started returning to travel. Our executives and management all took pay cuts! We are a customer-first company and the approach that RCL takes versus those of the company I work for - it’s very evident that philosophy and corporate culture is completely different.

Executive pay cuts only get you so far since the majority of executive pay is tied to stock performance.  RCL is paying roughly $1.75b in debt service and if the entire executive staff had zero pay, it would represent a rounding error in their interest payments.

Edited January 8, 2023 by Los_Pepes

[NMTraveller]

17 minutes ago, Los_Pepes said:

Until then the only other recourse is reduction in services. 

Which I would predict will eventually give them a reduction in cruisers.

[jdeer76]

15 minutes ago, Los_Pepes said:

Excellent points. One thing to consider is that they are paying a much higher interest rate with lower passenger loads. Until occupancy gets to Pre-Covid levels and they restructure to an overall lower interest rate, they will struggle to pay down $2b per year. Until then the only other recourse is reduction in services. 

In looking at their 2022 Q3 numbers it appears to me passenger loads recovered quite a bit.   I'm booked on a Celebrity cruise next June and looks like it will likely be close to full occupancy.  I don't see chapter 11 to be likely at this time.   It's an option of last resort not a get out of debt free card.   More likely I think is a reduction in new ship orders,  delayed ship refurbs, and extended life of older ships.   Plus sadly the increase in nickel and diming of passengers though celebrity may do this less than the mains like RCL or carnival.

[C4HCG]

5 minutes ago, NMTraveller said:

Which I would predict will eventually give them a reduction in cruisers.

Unless those cruisers look elsewhere and find a similar situation, the grass isn’t always greener. I would imagine all lines are facing these challenges, and land based vacations. We just looked to book London in Easter, a regular treat for us. Not a chance at those prices and that’s tough for us as London is our third favourite city.

Edited January 8, 2023 by C4HCG

[markeb]

26 minutes ago, BazingAu said:

I work at a large corporate travel company (billions in sales). Took on a ton of debt during the pandemic, and did not nickel and dime our customers after people/companies started returning to travel. Our executives and management all took pay cuts! We are a customer-first company and the approach that RCL takes versus those of the company I work for - it’s very evident that philosophy and corporate culture is completely different.

 

I'm making a wild assumption that as a service company, the bulk of corporate expenses are personnel. So executive and management pay cuts would have a large impact on the bottom line. 

 

If you look at RCG's income statements in their 10-K and 10-Q, food and fuel are their largest expense. Followed I think by interest on their debt (been a few days and their online filings were wrecking havoc with my web browser). Their admin and selling costs are actually not that high. Cutting executive compensation really wouldn't do much for them...