Carnival Corp issues business update

2020-10-12T17:23:40+00:00 October 12th, 2020|Finance|

In an update, Carnival Corp resumed limited guest operations last month with two Costa Cruises ships – ‘Costa Deliziosa’ and ’Costa Diadema’.

The company said in a business update that it will continue the limited resumption of its cruise operations with sailings on other Costa ships shortly, as well as with AIDA Cruises, which are anticipated to begin imminently.

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

Many of Carnival’s brands source the majority of their guests from the geographical region in which they operate. In the current environment, the company believed that this will benefit it in resuming guest cruise operations.

Carnival Corp’s President and CEO, Arnold Donald (pictured), said, “We have come full circle from initiating a suspension in the early days of the pandemic, to transitioning the fleet into a pause status, right sizing our organisation and, now, embarking on the phased resumption of guest operations, underway in two of our world leading cruise brands, Costa in Italy and AIDA in Germany.

“We have accelerated the sale of less efficient ships, enabling us to capitalise on pent up demand on reduced capacity and structurally lower our cost base, while retaining our most cash generating assets.

“We are taking aggressive actions managing the balance sheet and reducing capacity to position us to weather this disruption and also emerge a leaner, more efficient company, reinforcing our industry leading position,” he said.

Carnival said that it was encouraged that the US Centres for Disease Control’s (CDC) ‘No Sail Order’ was extended by only one month to 31st October, 2020, the same date as the industry’s end of voluntary suspension of passenger operations.

The company also said it expected future capacity to be moderated by the phased re-entry of its ships, the removal of capacity from its fleet and delays in new ship deliveries.

Carnival now expects to dispose of 18 ships, 10 of which have already left the fleet. In total, the 18 ships represent around 12% of pre-pause capacity and only 3% of operating income in 2019.
The sale of the 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 about 1% per ALBD.

Only two of the four ships originally scheduled to enter service this year, following the start of the pause, are expected to be delivered prior to the end of fiscal 2020, including ‘Enchanted Princess’, which was delivered in the past couple of weeks.

It is further expected that only five of the nine ships originally scheduled for delivery in fiscal 2020 and 2021 will be delivered prior to the end of fiscal year 2021, while the nine cruise ships and two smaller expedition ships of the 13 ships originally scheduled for delivery prior to the end of fiscal year 2022 will enter service by then.

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

Total customer deposits balance at 31st August, 2020, was $2.4 bill, the majority of which are FCCs, compared to total customer deposits balance of $2.9 bill as at 31st May, 2020. About 60% of bookings taken during the three weeks ended 20th September, 2020 were new bookings as opposed to FCC re-bookings, despite minimal advertising or marketing.

Carnival Corp’s CFO and Chief Accounting Officer, David Bernstein, added, “As of the end of the third quarter, we had 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. In addition, with the re-launch of our fleet, we saw a good opportunity to improve our balance sheet with an equity offering. So last month we announced an at-the-market or ATM equity offering programme.

“However, 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 $12.5 bill through a series of financing transactions and as of 31st August, 2020, the company had $8.2 bill of cash and cash equivalents.

The company’s monthly average cash burn rate for 3Q20 was $770 mill. The company expects the monthly average cash burn rate for 4Q20 to be around $530 mill.

Carnival Corp reported a GAAP net loss of $2.9 bill for the third quarter of 2020, which included $0.9 bill of non-cash impairment charges.

The 3Q20 adjusted net loss was $1.7 bill. At the end of the third quarter, the company had $8.2 bill of cash and cash equivalents.