Good morning. My name is Shelby, and I'll be your conference operator today. At this time, I would like to welcome everyone to Royal Caribbean Group's Business Update and Third Quarter 2020 Earnings Call. All participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to introduce Chief Financial Officer, Mr. Jason Liberty. Mr. Liberty, the floor is yours.
Thank you, Shelby. Good morning, everybody, and thank you for joining us today for our business update and third 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 filings 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 follow up with a recap of our third quarter results. I will provide an update on our latest liquidity actions and will then provide an update on the booking environment. We will open the call for your questions. Richard?
Thank you, Jason. Good morning to everybody. It's been almost seven months since we paused our cruise operations. Every single day has been extremely frustrating and challenging on so many levels. While emotionally and financially it hurts us tremendously to see our ships laid up, we've tried to use this time to good effect. Our teams, together with the Healthy Sail Panel, have worked tirelessly to produce a thoughtful set of health protocols to resume operations. Simultaneously, our finance team has worked aggressively in securing liquidity to position the company well for the recovery. One of the most frustrating elements of COVID-19 is how little the world knew at the beginning of this pandemic about the virus and how many false paths we have all gone down over this period.
Fortunately, the science has made remarkable strides, and there are a few observations and predictions that we can make. We are seeing an upsurge in infections in the United States and in other countries around the world. The experts seem to expect a second wave over the coming months. After seven months of agony, the prospect of a further surge is beyond frustrating. However, the advances on the science fronts give us optimism that this coming surge will not be as devastating as the early surges in March and April, and it will lead to a better 2021. Therapies are dramatically better, and they are more effective. Testing capabilities are already at extraordinary levels and moving higher, and the progress on vaccines has advanced at unprecedented speeds.
Personally, at this point in this unfathomable crisis, I feel more positive that we're beginning to see the light at the end of the tunnel. That light needs new batteries. The light is clearly visible. Please don't get me wrong. I don't mean to minimize the trauma that this disease is causing and will continue to cause. Progress is being made, and that progress is fundamental for our recovery. As you should know by now, this past September, the Healthy Sail Panel submitted their recommendations to us and the CDC. They were extremely well-received. We all know that we can't eliminate all risk of COVID-19 or anything else for that matter. Therefore, we asked the panel to help us to meet two specific goals. One, to reduce the risk of COVID below the level in our guests' home communities.
To assure that we can properly handle a COVID incident on board effectively and without inconveniencing all the guests or the local community. The panel made 74 specific recommendations towards accomplishing these two goals. By implementing their recommendations, we intend to make our ships an environment, a bubble if you will, that presents less risk of transmission than our guests would find on land. The entire industry here has agreed to abide by these recommendations. We believe they can serve as a foundation for a gradual and methodical, healthy return to service. The CDC and other regulators have been working on this for a long time. We're grateful for the CDC's focus on health and the time they and their observers have spent on this important topic with the Healthy Sail Panel.
I don't want to anticipate any decisions that the CDC might take when the current No Sail Order expires, but I am optimistic that through our continued dialogue and the pathway that we have outlined, we are moving in the direction of a healthy return to service. We propose to start slowly by training our crew and embarking on a series of non-revenue trial sailings where we can rehearse and validate the new protocols. The panel has recommended that this process be carefully evaluated by independent outside observers, and we will do that. Then only on a ship or two at first, and in a gradual and methodical way, we expect to start sailing again. There'll be short cruises at first with limited destinations and controlled shore excursions. As we learn, and as the science continues to improve, we will expand.
Besides the CDC in the U.S., we're also working with governments and health authorities across the globe to resume operation in a healthy and phased manner. Notably, TUI Cruises, Hapag-Lloyd, and Silversea have all already started sailing again. Only with a few ships, but it is a start. This month, the Singaporean government gave us the approval to sail as well. As a result, Quantum of the Seas will begin cruising in that region in December. Before I turn the call back to Jason, I want to say that I'm immensely proud of all our people, partners, travel advisors, lenders, and guests for sticking with us and helping us get to this point. The workload has been tremendous, and the pressure and the uncertainty nonstop. There's still more work to be done, and the environment is still uncertain.
Our industry has faced significant challenges in the past, and yet it has continued to demonstrate that it can overcome them. Not only overcome them, but continue to thrive and grow. Why? Simply because the product, the vacations that we offer, are so extraordinary, and some would argue that the value is even higher. With that, I'll turn the call back to Jason to talk through the numbers some more. Jason?
Thank you, Richard. This morning we reported adjusted net loss of $1.2 billion on a quarter with muted revenues as all sailings that should've been recorded during the period were canceled. These painful results were underpinned by a strong focus on reducing operating expenses. As a result, our cruise operating expenses are down more than 80%, or $1.2 billion versus our first quarter, and $371 million or 55% versus our last quarter as the fleet transitioned to its various levels of lay up, reaching their desired state by the end of August. Our top financial priority remains ensuring that we are in a strong liquidity position. To that end, we have continued to take opportunistic actions to improve our liquidity. During the month of August, we obtained a one-year commitment for a $700 million unsecured guaranteed 364-day facility.
Including this new financing, we ended the third quarter with $3.7 billion in available liquidity. Moreover, during this month, we bolstered our overall liquidity even further by raising an additional $1.15 billion through a combination of convertible notes and a public offering of common stock. The convertible notes and equity offerings were multiple times oversubscribed, and our convertible notes were priced at a rate of 2.875% with a conversion premium of 37.5%. This was really a superb outcome and a testament to the value of our brands and to the amazing execution of our finance, legal, and accounting teams. We believe that the additional liquidity provides us important flexibility, both as we plan for a gradual return to service, and as we work to de-lever our balance sheet and our path back to investment-grade metrics.
As it pertains to our cash spend, we spent approximately $1.1 billion in the third quarter, driven mainly by ship operating expenses. These expenses came sequentially down each month as our ships entered their various levels of lay up. Notably, during the third quarter, our average monthly cash burn was consistent with our previously announced range for a prolonged suspension, when excluding cash refunds of customer deposits, commissions, debt obligations, cash inflows from new and existing bookings, and fees and collateral postings relating to our financing and hedging activity. This morning, we reaffirmed that the cash burn will be on average in the range of $250 million-$290 million per month during a prolonged suspension of operations. As we mentioned in the press release this morning, this number excludes refunds of customer deposits, debt obligations, commissions, as well as cash inflows from new and existing bookings.
When we return to service and start to rev up our sales and marketing machines, we anticipate the customer deposits and cash inflows from operations will further improve our cash position. However, in addition to increased sales and marketing activities, ramping up our business will also include startup costs related to bringing our amazing crew back to operations and costs related to some of the healthy return to service protocols. I know that you would all like to understand precisely what those cash flows and costs will be, but the fluidity of the situation makes providing such guidance impossible today. What I would say is that we look to be very thoughtful as to the cadence of how we will bring our fleet back up to its pre-COVID levels. The ramp-up will not be a light switch, but instead, capacity will increase based on a set of criteria.
First and foremost, our decision-making will be guided by the safety of our guests and crew. Also, we want to ensure that we are delivering the world-class vacation that our guests expect, and that we are bringing the ships back in the most profitable way, which will be mainly guided by our demand profile. Also, we will continue to evaluate more actions that can be taken to further reshape our cost structure and improve our operating leverage as we return to service. Another element that impacts our cash flow is our capital expenditures. As we reported this morning, we expect these to be approximately $500 million for the fourth quarter of 2020 and $2.1 billion for 2021. Approximately 80% of these expenditures do relate to new build projects, the majority of which have committed financing already in place.
As it relates to 2020, the capital expenditures include the delivery of the Silver Moon this week, and for 2021, they include the delivery of Odyssey of the Seas during the first quarter and Silver Dawn during the fourth quarter. I will provide an update on the business, starting first with our capacity. As I previously noted, the situation regarding our return to service is fluid, but we are currently planning for a very limited initial return and a gradual ramp-up during the first half of 2021. As a result, our 2021 capacity will be significantly lower than 2019. Deployment in the spring is expected to be highly focused on short sailings from key drive markets in both the U.S. and Asia Pacific regions. We will also make the most out of our incredible private destination in the Bahamas, Perfect Day at CocoCay.
Now I'll provide you an update on what we are seeing in the demand environment for 2021 sailings. On our last earnings call, I had commented that the cadence of demand was generally determined by COVID-19 cases, and that has mostly continued to be the case. Over the last couple of months, with very minimal marketing activities, we have seen a steady improvement in bookings for 2021, with summer sailings mainly driving the uptick in demand. Bookings for the spring season have remained below pre-COVID-19 levels, which is consistent with our staggered return to service approach and lower planned occupancy expectations. From a cumulative standpoint, our book load factors for sailings in the second half of 2021 is within historical ranges at prices that are down slightly. When you exclude the dilutionary impact of the FCCs, pricing for the second half of the year is relatively flat.
Overall, 2021 is continuing to benefit from the rebooking activities associated with FCCs and the Lift and Shift program. Approximately 80% of all of our 2021 bookings made to date are new, and more than 65% of the bookings made since early August have been new. For the full year, pricing is relatively flat to same time last year and is up slightly when you exclude the negative impact of the bookings made with the 125% FCCs. About three weeks ago, we announced the Quantum of the Seas will start sailing from Singapore on December first, and over the following week of the announcement, we saw bookings spike up significantly. While this is just one out of a fleet of 53 ships, it clearly highlights the pent-up demand for cruising.
Regarding our customer deposits, the balance at the end of September was $1.8 billion, relatively equal to the balance reported in our last quarterly update, as inflows from new bookings mostly offset the outflows from refunds. Approximately half of our customer deposit balance is associated with FCCs and half is related to new deposits for future sailings. About one-third of the overall balance is non-refundable. Approximately half of the guests who booked on the canceled sailings have requested refunds, with the other 50% either holding an FCC or Lift and Shift their booking to 2021. As it pertains to our financial results for the fourth quarter, I'll note 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 fourth quarter and 2020 fiscal year. The magnitude of the loss will depend on the timing and extent of our return to service. Lastly, I'd like to thank our teams across the whole enterprise for all they've done through this extraordinary time. As Richard mentioned, these seven months have been challenging on so many levels, but we're all pulling through it together and exceptionally dedicated and committed to getting our business back. I know that we'll all emerge a stronger, more resilient company. With that, I will ask Shelby to open up the call for a question-and-answer session. Shelby?
Your first question is from Robin Farley of UBS.
Great. Thanks very much. I know you don't want to jump ahead of anything the CDC might do in the next couple of days, I wonder if you could share with us a little bit about what factors they've expressed are important to them. Because you mentioned that one of the goals of the Healthy Sail Panel was to have the incidence rate of the virus be better than it is on land, and that's certainly the case, I guess, with the cruises in Italy from other brands that test everybody before they get on board. It's been less than a 0.1% or something incidence rate. In other words, is that what matters most to the CDC from your discussions with them when they think about restarting? Or are there other factors that you think are more important than that? Thanks.
It's a complex subject, and I don't claim to be the expert on this. We together with Norwegian Cruise Line Holdings put together this panel.
They spent four months going through the details of this process. They did so with the CDC observers at the meetings. There are a lot of factors. We've talked about that before, Robin, where we believe that there are things that make ships more demanding in terms of what you might want to take. There's also the advantage that a ship has. The biggest advantage is that we have a controlled environment. The whole industry here has accepted to abide by the 74 recommendations. A big part of that is to create this kind of bubble in the beginning to do screening. No other industry that I know of has agreed to do 100% screening of everyone. I think that's a big part of what makes this a viable project.
I think I would be very cautious about speaking on behalf of the CDC. I think they're looking at all aspects of it. As I say, they were at all the Healthy Sail Panel meetings, and we've had discussions with them, and I think they're trying to put all of that together. They're also going through a process that we don't necessarily see all of, so I think they also have to remember that not all of this is visible to us. They're looking at all the aspects of it, and I think the No Sail Order is due to expire shortly anyhow. I think we're eagerly and hopefully waiting for their specific comments.
Okay, great. Thank you. Just as a follow-up question, I think one of the things when we think about the cash burn rate and restarting is that potentially the risk of restarting and then having to stop again, that maybe the cash burn would go up. Just we saw AIDA Cruises this morning say that they're going to pause in Germany for the month of November. Can you give us some thoughts about when you restart, whether it's crew contracts are only going to be month to month and not six months, or things that might keep your expenses from sort of going back up and then having to carry higher expenses again in the case of perhaps a pause somewhere? Thanks.
Yeah. Hey, Robin. I think one of the kind of key things to point to is we've operated about 70 sailings now between TUI Cruises and Hapag-Lloyd Cruises and Silversea Cruises, utilizing the protocols that have been developed and put forward by the recommendations with the Healthy Sail Panel. As you pointed out, the number of cases are exceptionally low, and it shows that the protocols do work. We are very focused on doing whatever we possibly can for there not to be a situation where we come online, and then we have to go offline. While sure, nothing's perfect, I think the protocols have shown that they're working. The second thing I would say is, and this kind of goes back to my comments around slowly ramping up the business.
We do look to do this in a very methodical way, where we're able to have test cruises and have cruises. As we're looking at those cruises, really watching how they're performing on both an experience level, a safety level, profitability level, and then slowly kind of turning the dial back up to kind of avoid a situation where we have to bring all of our crew back, which took us many months to do between the spring and the summer. I think we're being very thoughtful. We're learning a lot through the sailings that have already occurred, which provides us confidence. Of course, I think by just slowly ramping up the business, it avoids too much pressure on our cash burn.
Robin, because the question you've asked I think is so apt, and it is something that people are focused on, I'd like to maybe embellish a little bit Jason's comments as well, because this whole concept of the trial voyages is really quite important. We're not just suddenly coming back. It's going to take a while to organize those voyages, and we're going to have the opportunity to see the protocols in action and to adjust them. Frankly, I don't think we're going to be making the big leap until we and the other authorities and our Healthy Sail Panel are all comfortable that this is now a viable thing to do. We really do believe that it is possible to make it so that you are safer on a cruise ship than you are on Main Street. The evidence in the startups in Europe have demonstrated that.
When there have been instances, and there will be because there are everywhere, I think you've seen the response has worked. That's really the key. We think that these slow trial trips and the slow startups will give us the opportunity, one, to watch the technology improve and the knowledge of the virus improve, and two, to prove out our protocols. I think that's why we're so optimistic about where this is leading.
Your next question is from Felicia Hendrix of Barclays.
Hi. Thank you so much. Richard, understanding that this is kind of a sensitive subject, just wondering what you think the CDC needs to see for them to give you the green light? What are the key metrics they're looking for? Then also just, with TUI and Hapag-Lloyd in Germany and with the German shutdown, what do you think is going to happen with those lines?
Sure. Well, good morning, Felicia.
Morning.
As you say, this is a sensitive time. We're not part of their process, I think it really would be awkward for me to speak on, and wrong for me to speak on behalf of the CDC. I think they're looking at all aspects of it, and it is very complicated. I think we really made some dramatic inroads with the work of the Healthy Sail Panel. To have people of this level of expertise, this level of experience. These aren't just leading experts in the field, these are the leading experts with the experience of regulating as well. I think we learned a lot in that process, and the cooperation with the CDC was very helpful. I can't predict how they will do it here.
I'm not too much willing to comment on it, except to say, I'm assuming that if you really look at the fairly long, and I know it's dry, but analysis that was done by the Healthy Sail Panel and you see the depth of detail they went into and the transparency that they had. I think that should give the CDC a lot of comfort. I think that plus the trial trips. The trial trips are important. That was an important issue for our Healthy Sail Panel, and I think it will be an important point for the CDC, I'm very optimistic that that will go well. The second part of your question was on TUI and Hapag-Lloyd?
Yes.
They continue to operate because we have seen such good results. Frankly, the knowledge that we're getting from these operations is helpful to us, it's helpful to the CDC. We are seeing both an ability to limit the spread onto the ship, and we're seeing an ability to deal with incidents when they occur to keep it from becoming an outbreak. I think that experience is positive for us and it's small, we understand that. We're not rushing to do this. We've said from the beginning, we're not going to go until we and the experts are convinced that this is the right thing to be doing and it's safe and prudent, and we're sticking to that. We are learning from this, and that will make us safer and healthier as we go forward.
I guess I was just wondering if the German shutdown was going to affect those brands?
It does not appear to be, no. Again, that's because of the success of the protocols.
Okay, great. Then, okay, the next question is a little even more sensitive, and I apologize for this, but we get a lot of questions on this almost daily. I'm just going to caveat it with, I do not think this is a place for political commentary, there you have it. We are getting asked all the time to walk investors through a scenario where the CDC No Sail Order is extended to after the election, and how or if a potential Biden administration would have any impact on when the order would be lifted.
I'm quite pleased that we're working cooperatively with the experts. It is my strong hope that this is going to be decided on the basis of the science, not on the politics. I'll express a personal view that I will be pleased to get my television and my computer back when the election ads are over. I think our focus is on the science. We think the industry has done a very strong job, the whole industry. I've talked about the Healthy Sail Panel. I also remind you that before the startup in Europe, they all used experts to guide that. They all worked with the governments. It wasn't a political issue, it was a scientific issue. I think the science is strong. I'm definitely hopeful that regardless of who's in power, the science will lead us to a good answer.
The other thing is that, people do want to see the industry back in operation. There's a lot of people suffering because they're out of work and if we can restart one important element of our economy in a safe and healthy way, I think that's in everybody's interest.
Okay. Thank you for that answer, Richard.
Your next question is from Steven Wieczynski of Stifel.
Yeah. Hey, good morning, guys. Richard, I hate to do this to you, but I'm going to keep you on the hot seat a little bit here. I'm not even sure if this is going to be a fair question or not, so you can tell me one way or the other. I think there have been rumors out there that you have had direct conversations with the White House. Maybe if you did or you did not, anything there you could help us understand how those conversations, if there were conversations, how they progressed and maybe what the White House is looking for that's different from the CDC, if that makes sense.
I'll have conversation with anyone who will talk to us on this subject. We're sort of obsessive. I'd like to get out of my house after seven months. There obviously is a lot of interest in this throughout the country. This is a huge issue for employment in our country. The cruise industry is an important employer, an important driver of economic activity. Also, it's a respite, and I think it will be soon seen as a respite from the isolation that we're all feeling here. Steve, I certainly never mind your questions. You'll also understand what I can and can't say, and the conversations I've had are private, and I would respect the privacy of those.
I will say that we have worked hard to make sure that the decision is a scientific one, that it is led by the best minds with experience, both in terms of the specific science of the disease and of the engineering and of everything else, as well as the impact on the economy and how you regulate this. We've talked essentially to all the people who are involved in this kind of decision. I think I have to say that everybody we've talked to has taken this seriously. They understand the importance of controlling the spread of this virus. They understand the importance of getting the protocols right. I really am very excited to watch the methodical way that the panel worked and other panels.
You saw this in the cooperation in Europe between the public health officials and the political officials and the cruise lines cooperatively trying to solve something that's a problem for all of us. I'm really not going to comment on who's on what on any given issue. It is complicated. I think everybody is trying to find the right solution. I'm optimistic. I am optimistic that we will soon have a path that we all see as a pathway back to resuming operations. It'll be slower than I would wish, but faster than many are assuming. I think that slow, methodical, careful approach speaks well for our industry. It speaks well for the regulators around the world. We're going to continue on that process.
Okay. Got you. Thanks for trying to answer that. I apologize for asking.
Yeah.
So-
Never a problem to ask, even as you well know, and if I can answer it, I will, but this is a fluid situation. That's the other thing I think we have to say, and I know I hate to sound like a broken record, but what we don't know, we don't know.
Right. Exactly. Let's go to a couple of years down the road from now when hopefully the world is back to normal. I guess the question I want to ask is around supply and supply outlook for the industry. We've seen certain operators remove a good bit of capacity from the market already. You guys, and I can't imagine other operators are going to be ordering new ships for an extended period of time. I mean, as we look a couple of years down the road, is it fair to say the cruise industry could be set up for a multi-year period of supply growth that could be basically close to zero? Am I thinking about it the right way?
Hey, Steve, it's Jason. Well, I don't know if I would say close to zero. Certainly, capacity growth as we were all collectively expecting pre-COVID, is certainly going to be less, whether that's exits out of the industry where ships are being scrapped, whether it's ship sales being sold to tertiary operators. Of course, I think we do expect that there'll be slower new build growth, probably towards the latter part of four or five years from now. The ships that are on order as we see them, though delayed by probably eight to 10 months, I think we expect to continue to come online. The question will be, how many ships will be retired or sold or scrapped during that period of time? I know for us, we've been selling about a ship or two a year. We have scrapped some ships.
We're being very opportunistic about the situation, when our point of view is that ship inside of one of our brands does not fit strategically or we can't invest to have that ship fit strategically inside the brand. That's something that's an ongoing process for us, which has been similar in the past.
Okay, got it. Jason, one more, sorry, real quick one. The cruises that you're operating in Europe today, are they operating at a break-even or even a profitable level at this point?
I would say that the ships that are operating in Europe today, in terms of break-even relative on a ship-specific basis, are probably at or about break-even. I'm talking more kind of direct profit. Obviously, there are fixed costs that those ships probably don't cover as of yet. The occupancy levels, the demand that we're seeing is relatively good, all things considered. I think what we've experienced to date, which is a little bit different than in the U.S. with COVID news. Sometimes when there's negative COVID news over there, because the consumer gets or the guest gets an opportunity to kind of get out of town and get some fresh air, you actually see elevation in demand. That's one of the things for sure too in cruises has been seen.
Great. Thanks, guys. Appreciate it.
Thanks, dude.
Your next question is from James Hardiman of Wedbush Securities.
Hey, good morning. Thanks for taking my questions. I've got three of them, but I think they're pretty quick, so I'll ask them all at once. I think everybody generally understands that 2021 is going to be a rocky year and it's hard to anticipate. Maybe if you could walk us through, A, to follow up on Steven's question, is there any easy way to think about your capacity in 2022, 2023 versus, say, what you had in 2019? That's number one. Number two, any way to think about leverage? I fully understand that your leverage is going to be a function of how long these layups last and you're ultimately burning cash. Is there any way to think through what leverage looks like once you emerge from this in 2022 and beyond?
I guess just more broadly, if I look at the consensus numbers for 2022, revenues are basically almost back to 2019. Obviously, there's a bunch of incremental interest and everything else that's hurting earnings power. Is that realistic? Or are there some considerations that we should be thinking through once we get past the mess that will be 2021? Thanks.
Thanks, James. I think on a capacity standpoint, obviously there's a lot of time between now and 2022 and 2023. Certainly, I think our current expectations is that our fleet will be back up and running certainly by 2022 and 2023. Capacity for us is likely to be higher because of the new ships that I talked about in my remarks coming online. At the same time, as I commented on Steven's question, we do continue to opportunistically look at ship sales or scrapping in very kind of remote type of situations, which could lower that capacity growth number down a little bit. I would expect our capacity as we look in 2022 and 2023 to be higher than it was in 2019, driven by new capacity. We've already taken out some capacity, the scrapping of some ships.
Of course, as we know, as these new ships roll on, the higher inventory mix, the more onboard revenue venues, they're much more fuel efficient, lead to really enhancing our margins. Moving on to leverage. It is certainly a goal of ours to get back to our pre-COVID level metrics, especially as it looks getting to investment grade. I think how we look to do that is obviously putting more of our free cash flow towards paying down debt. We've taken some action here recently to put ourselves in a position to pay down debt. Hopefully, the sooner we get started here, the less of the cash that we're holding today we're going to need, and that could be purposed to also paying down debt.
It is definitely one of our management team on our board's kind of core objective to look at how do we get to pre-COVID leverage as soon as possible. I won't really comment on, because it's just way too early to talk about consensus for 2022. I think important variables will be when we get the green light to get back into service and what that ramp-up looks like, what the universe looks like around therapeutics and vaccines and testing. Of course, Wave is very important to 2021, but Waves also begins the momentum into 2022. The more for us the flywheel is spinning as we go into all of that, the more momentum I think we'll build for 2022. We're cautiously optimistic.
I won't talk about whether we'll be at pre-COVID levels by 2022 or 2023, except to say that we're trying to build momentum as quickly as we can and making sure we're doing it in a very safe and healthy way.
That's all really helpful. Thanks, Jason.
Thanks, James.
Your next question is from Jaime Katz of Morningstar.
Hi, good morning.
Thank you.
Can you help us unpack what is in that negative onboard and other revenue line item? It looks a little optically funny, so I'm just curious if that's a one-time thing I should be aware of, or if it's something that could potentially repeat.
Sure, Jaime. It's a very immaterial amount of money. As we were going through in the kind of Q1 and Q2 and processing tons of refunds and cancellations and so forth, there's some cancellation or penalty income that we're reversing here in our Q3 numbers. These are small numbers. Of course, we don't really have any onboard revenue. We don't really have any ticket revenue. Just a small correction there stands out.
Okay. On the capital allocation front, you guys called out pretty long on putting out an equity issuance to raise capital. I'm curious how you're thinking about that going forward. If there is a preference or sort of a rule set you're thinking of for capital raises ahead. Thanks.
Well, I think we're going to continue to be patient and methodical on how we raise capital, if and when we need it. I think we feel pretty good about our liquidity position. We took action here to put ourselves in a posture to be able to de-lever as we return to service. I think that we'll continue to evaluate if we do need to raise capital there, the debt markets, the convert markets, or the equity markets. Our focus here is to fix the balance sheet as soon as we can, but also doing it in a very thoughtful way.
I think what we'll continue to do is to evaluate those options, as well as looking at within our business, how do we improve our margins to generate more cash flow to have that to be available in order for us to pay down debt and invest in our business.
Thank you.
Your next question.
Thank you.
is from Brandt Montour of JPMorgan.
Good morning, everyone. Thanks for taking my questions. Thinking about pent-up demand and possibly a meaningful inflection in bookings that you may be expecting when you're allowed to sail, can you just weigh which factors or events you think will be most important for how that curve looks between actual expiration of the No Sail Order, but weight that against the cruise-specific travel warning the CDC put out last week? Obviously, the recent lift virus data is another drag. I guess what I'm asking is it possible we have to wait until you're actually able to prove you can cruise safely before we see that big inflection in bookings?
Hi, Brandt, it's Michael. Interestingly, when I think Jason commented on Quantum in Singapore, when we opened for sail after we received approval from the Singaporean government, we were really quite surprised by the level of demand that came in for the product over that winter season that we've got it open. Those cruises are basically ocean voyages that sail for three, four, five days. Within the first two weeks, we had literally the triple demand that we were expecting at rates above what we were expecting. I think going back to Jason's point earlier with regards to what they're seeing in Europe with demand, even when COVID increases, there is demand in the marketplace, and it's coming quite naturally.
The other comment I would make on demand that we're seeing is that in the American market, it's really correlated with how consumers feel about COVID and what they believe is occurring with COVID in terms of it moving behind us. About three or four months ago, a large group of consumers, we're checking consumers every single month.
About three or four months ago, most people believed that COVID would be kind of moving behind us by the end of 2020. Of course, that's shifted now, and the belief from most consumers is that as you move through 2021, COVID will move behind us with vaccine, therapeutics, et cetera. You very much see a correlation between what people are believing and how they're booking. I think we commented before that a lot of consumers effectively lost their summer 2020. There's a belief that COVID will be behind us at some point in 2021, and we kind of see that in the booking behavior out of the American market for our products through 2021, with a particular emphasis on summer 2021.
I think it feels and it looks as if customers are thinking, this is going to be behind us and we're going to have a summer vacation. I think with regards to the No Sail Order, I do believe that if there is a change in the No Sail Order and a pathway is created for a safe return to cruising, there will be an uptick in demand. I think people will naturally wait and see. I think also there'll be, as I just mentioned, a correlation between what's occurring with COVID-19 in the community and how people feel confident about taking a vacation and booking a vacation. It's complicated. It's very much connected to consumer hopes and feelings about COVID-19.
Got it. That's incredibly helpful color. Thank you for that. Then my second question is following up on the universal testing front. We all read the 74 points, and I know that the recommendations include sort of a dual layer, right? Where the customer brings their own sort of PCR level test, and then there's another perhaps rapid test at the port. Is that what you've committed to across all your brands, this sort of dual layer testing, and is that an industry-wide thing as well? We haven't heard much detail on specific, how many tests, what kind of tests, and things like that. Any color you can provide. Thank you.
Yeah. I think your comment on that is accurate, referring back to the panel report. Part of the point that the panel made, was how quickly this whole testing issue is changing. I think that's one of the more exciting things that we're seeing. We've gone from a very small number of tests to now the tests are regularly running, one million, 1.2 million a day. That number has the potential for doubling in a fairly short period of time. The panel really did conclude that as this technology improves, we ought to improve. Our mantra is continuous improvement. We think that as the new tests are coming out, these lateral flow tests are quite dramatically an improvement in speed, in accuracy, in availability, and in cost. We do think that testing is going to be an important part of it.
I'm not going to get into all the different kinds of testing and which we would do where, because that's all going to change tomorrow. As I say, it's interesting that even today, no other industry that I'm aware of has said they would do 100% testing. That's what we are committed to do, and frankly, the whole industry has said that they think that's the right thing to do. I won't get into the specifics because I think if I do, it'll be wrong tomorrow. I think we will be starting with 100% testing, and over time, we hope that will get even faster, cheaper, et cetera.
Helpful. Thanks and good luck.
Thanks.
Your next question is from Greg Badishkanian of Wolfe Research.
Hey, guys. Good morning. It's actually Fred Wightman on for Greg Badishkanian. Jason, you gave some stats for the full year 2021 pricing on a cumulative basis, and it sounded like that was unchanged versus what you guys had provided last quarter. I thought you were expecting that number to come down as more FCCs were redeemed. Can you just sort of talk about what, if anything, differed versus your expectations?
Great. Yeah. This will be our last question. That's exactly right. On the pricing standpoint, as I said, as we've been taking on new bookings, we've been able to hold our rates, and despite the FCCs coming more and more into play. I think it is a testament to demand. It is still very early, but at least what we're seeing from the back half and really, quite frankly, from June on is, our pricing is holding up quite well.
If I could sneak one more quick one in. I think last quarter you talked about there was a line in the sand sort of early middle 2Q as far as where that consumer demand really did pick up. Have you seen that timeline change in any way? Are people sort of moving their bookings either earlier or later in the year?
It's very consistent with what Michael said. You can really draw a line from when the summer begins. You can see that it's not just about the new booking, it's also seeing where people are Lift and Shift their bookings, is very much similar to what they were expecting to do this year, as we look at the summertime and beyond. By summer, we mean really kind of when kids get out of school. Okay. Thank you for your assistance, Shelby, with the call today. We thank you all for your participation and ongoing interest in the company. Carola will be available for any follow-ups you might have. From all of us, we wish you all a very great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.