Carnival continues to suffer – trims fleet

2020-09-24T20:06:10+00:00 September 24th, 2020|Finance|

Carnival Corp has announced a US GAAP net loss of $2.9 bill for the third quarter of 2020. This includes $0.9 bill of non-cash impairment charges.

The third quarter 2020 adjusted net loss was $1.7 bill.

Carnival’s monthly average cash burn rate for the third quarter was $770 mill. The company said that it expected the monthly average cash burn rate for 4Q20 to be around $530 mill, which results in an average monthly burn rate for the second half of the year of $650 mill.

This rate includes about $250 mill of ongoing ship operating and administrative expenses, working capital changes (excluding changes in customer deposits and reserves for credit card processors), interest expense and committed capital expenditures (net of committed export credit facilities) and also excludes scheduled debt maturities.

Carnival Corp’s President and CEO, Arnold Donald (pictured), said, “Just six months after we paused cruise operations across our global fleet, this past weekend, we successfully completed our first seven day cruise on our Italian brand Costa. Soon a second of our nine cruise line brands will resume guest operations, our German sourced brand AIDA.

“Our business relies solely on leisure travel, which we believe has historically proven to be far more resilient than business travel and cannot be easily replaced with video conferencing and other means of technology. Our portfolio includes many regional brands, which clearly position us well for a staggered return to service in the current environment.

“We continue to take aggressive action to emerge a leaner more efficient company. We are accelerating the exit of 18 less efficient ships from our fleet. This will generate a 12% reduction in capacity and a structurally lower cost base, while retaining the most cash generative assets in our portfolio.

“With two thirds of our guests repeat cruisers each year, we believe the reduction in capacity leaves us well positioned to take advantage of the proven resiliency of, and the pent up demand for cruise travel – as evidenced by our being at the higher end of historical booking curves for the second half of 2021.

“We will emerge with a more efficient fleet, with a stretched out newbuild order book and having paused new ship orders, leaving us with no deliveries in 2024 and only one delivery in 2025, allowing us to pay down debt and create increasing value for our shareholders,” he said.

Carnival paused cruise operations in March, but resumed limited guest operations on 6th September, 2020, with Costa Cruises’ successful voyage visiting five destinations in Italy.

The company said that it planned to continue a limited resumption of its cruise operations with additional Costa ships in September and October, as well as with AIDA Cruises’ during the autumn of this year.

These initial cruises will continue to take place with adjusted passenger capacity and enhanced health protocols developed with government and health authorities, and guidance from the company’s group of medical and scientific experts.

Costa was the first cruise company to earn the Biosafety Trust Certification from class society RINA. The certification process examined all aspects of life on board and ashore and assessed the compliance of the system with procedures aimed at the prevention and control of infections.

Since the pause in operations, Carnival has accelerated the removal of ships in fiscal 2020, which were previously expected to be sold over the coming years. The company now expects to dispose of 18 ships, eight of which have already left the fleet.

The sale of less efficient ships will result in future operating expense efficiencies of around 2% per available lower berth day (ALBD) and a reduction in fuel consumption of around 1% per ALBD.

The company also expects to take delivery of only two of the four ships originally scheduled for this year. It currently expects only five of the nine ships originally scheduled for delivery in fiscal 2020 and 2021 to be delivered prior to the end of fiscal year 2021.

Carnival also said that expected nine cruise ships and two smaller expedition ships of the 13 ships originally scheduled for delivery prior to the end of fiscal year 2022 to be delivered by then.

Based on the actions taken to date and the scheduled newbuild deliveries through 2022, the company’s fleet will be more efficient with a roughly 13% larger average berth size and an average age of 12 years in 2022, versus 13 years, in each case, compared to 2019.

While the company believes bookings in the first half of 2021 reflect expectations of a phased resumption of cruise operations and anticipated itinerary changes, as of 31st August, 2020, cumulative advanced bookings for the second half of 2021 capacity currently available for sale are at the higher end of the historical range and similar to where booking positions were in 2018 for the second half of 2019.

Pricings for these bookings are lower by mid-single digits, versus the second half of 2019, on a comparable basis, reflecting the effect of future cruise credits (FCC) from previously cancelled cruises being applied.

Carnival said that it continued to take bookings for both 2021 and 2022.

As of 31st August, 2020, about 45% of guests affected by the company’s schedule changes have received enhanced FCCs and around 55% requested refunds.

Carnival Corp CFO and Chief Accounting Officer, David Bernstein, added, “We have over $8 bill of available cash and additional financing alternatives to opportunistically further improve our liquidity profile. We have recently begun to optimise our capital structure with the early extinguishment of debt on favourable economic terms and the extension of debt maturities.

“Once we fully resume guest cruise operations, we expect our cash flow potential will build a path to further strengthen our balance sheet and return us to an investment grade credit rating over time,” he said.

Since March, the company has raised nearly $12 bill through a series of financing transactions, including the following transactions that occurred during the third quarter:

•Borrowed an aggregate principal amount of $2.8 bill in two tranches under a first priority senior secured term loan facility on 30th June, 2020.
•Issued $1.3 bill aggregate principal amount of second priority senior secured notes in two tranches on 20th July, 2020.
•Entered into debt holiday amendments, deferring certain principal repayments otherwise due through March, 2021 – certain export credit agencies had offered a 12-month debt amortisation and financial covenant holiday.
•Completed a registered direct offering of 99 mill shares of its common stock and used the proceeds to repurchase $886 mill of its 5.75% convertible senior notes due 2023 on 10th August, 2020.
•Issued $900 mill aggregate principal amount of second priority senior secured notes on 18th August, 2020.

As of 31st August, 2020, the company had $8.2 bill of cash and cash equivalents.