Carnival Corp set to weather the storm

2021-01-11T22:25:14+00:00 January 11th, 2021|Finance|

Carnival Corp has reported a GAAP net loss of $2.2 bill fore the fourth quarter of last year and an adjusted net loss of $1.9 bill.

At the end of December, 2020, the group had $9.5 bill in cash and cash equivalents.

Carnival has also accelerated the removal of 19 less efficient cruise ships of which 15 have already left the fleet.

In total, the 19 ships represent about 13% of pre-pause capacity and only 3% of operating income in 2019. The sale of these 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.

Carnival recently took delivery of two ships and expects only one more ship to be delivered in fiscal 2021, compared to five ships that were originally scheduled for delivery this fiscal year.

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 14% larger average berth size per ship and an average age of 12 years in 2022, versus 13 years, in each case, compared to 2019.

On a more positive note, Carnival claimed that cumulative advanced bookings for the first half of 2022 were ahead of 2019, despite minimal advertising or marketing.

Carnival Corp President and CEO, Arnold Donald (pictured), noted, “2020 has proven to be a true testament to the resilience of our company. We took aggressive actions to implement and optimise a complete pause in our guest cruise operations across all brands globally, and developed protocols to begin our staggered resumption, first in Italy for our Costa brand, then followed by Germany for our AIDA brand. We are now working diligently towards resuming operations in Asia, Australia, the UK and the US over the course of 2021.”

“With the aggressive actions we have taken, managing the balance sheet and reducing capacity, we are well positioned to capitalise on pent up demand and to emerge a leaner, more efficient company, reinforcing our industry leading position,”  he added.

Costa Cruises and AIDA Cruises have resumed limited guest cruise operations and other brands and ships are expected to return to service over time.

The initial cruises will continue with adjusted passenger capacity and enhanced health protocols developed with government and health authorities, and guidance from the company’s roster of medical and scientific experts.

Many of the company’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.

Working with governments, national health authorities and medical experts, Costa and AIDA have a comprehensive set of health and hygiene protocols that has helped facilitate a safe and healthy return to cruise vacations.

These enhanced protocols were modelled on shoreside health and mitigation guidelines as provided by each brand’s respective country, and approved by all relevant regulatory authorities of the flag state, Italy.

Protocols will be updated based on evolving scientific and medical knowledge related to mitigation strategies.

Costa was the first cruise company to earn the Biosafety Trust Certification from Registro Italiano Navale (RINA). The certification process examined all aspects of life onboard and ashore and assessed the compliance of the system with procedures aimed at the prevention and control of infections.

The company is also working directly with the US Centres for Disease Control and Prevention (CDC) on the development of protocols necessary to resume cruising from the US.

The CDC’s Framework for Conditional Sailing Order effective from 30th October, 2020 consists of several initial requirements that cruise ship operators will need to follow prior to resuming guest operations. Furthermore, the framework is subject to additional technical instructions and orders from the CDC and may change based on public health considerations.

Donald added, “The booking trends that we have consistently experienced throughout this period affirm the strong fundamental demand for our brands which will facilitate our staggered resumption and support the long-term growth of our company.”

Carnival Corp CFO, David Bernstein said, “We ended the year with $9.5 bill in cash and have the liquidity in place to sustain ourselves throughout 2021, even in a zero-revenue environment.

“While we raised capital mainly through debt this year, in the last few months we opportunistically strengthened our capital structure by raising $2.5 bill through at-the-market equity offering programmes and by the early conversion of $1.5 bill of convertible debt.

“As we return to full operations, our cash flow will be the primary driver to return to investment grade credit over time, creating greater shareholder value,” he claimed.

The pause in guest operations continues to have a material negative impact on all aspects of the company’s business, including the company’s liquidity, financial position and results of operations. As a result, Carnival said it expects to record a net loss on both a US GAAP and adjusted basis for the first quarter and full year ending 30th November, 2021.

Carnival’s monthly average cash burn rate for 4Q20 was $500 mill, which was slightly better than expected due to the timing of capital expenditures. The company expects the monthly average cash burn rate for 1Q21 to be about $600 mill.

This rate includes ongoing ship operating and administrative expenses, working capital changes (excluding changes in customer deposits), interest expense and capital expenditures (net of unfunded export credit facilities) and also excludes scheduled debt maturities, as well as other cash collateral to be provided (which may increase in the future).

In addition, Carnival said it was actively addressing an IT security incident affecting two of its brands, one of which was AIDA.

Based on a preliminary assessment and on the information currently known, the company said that it did not believe this incident will have a material impact on its business, operations or financial results.