Carnival – liquidity sufficient for a full return to cruising

2021-09-26T19:07:29+00:00 September 26th, 2021|Finance|

Carnival Corp has reported a US GAAP net loss of $2.8 bill and adjusted net loss of $2 bill for the third quarter of 2021.

The quarter ended with $7.8 bill of liquidity, which the company believed was sufficient to return to full cruise operations.

Voyages completed in 3Q21 were cash flow positive and the company said that it expected this to continue.

As of 31st August, 2021, eight of the company’s nine brands had resumed guest operations as part of its gradual return to service.

Booking volumes for all future cruises during 3Q21 were higher than booking volumes during the first quarter, albeit not as robust as the second quarter of 2021, primarily as a result of lower booking volumes in August, 2021.

This reflected the impact on overall US consumer confidence resulting from heightened uncertainty around the COVID-19 Delta variant.
Cumulative advanced bookings for the second half of next year are ahead of a very strong 2019.

Customer deposits increased $630 mill in 3Q21, marking the second consecutive quarter since March, 2020 the company had seen an increase.

Through its debt management efforts, the company has reduced future annual interest expense by over $250 mill per year and has completed cumulative debt principal payment extensions of around $4 bill, improving its future liquidity position.

Carnival Corp President and CEO, Arnold Donald (pictured), commented, “We are very glad to be back doing what we do best, delivering memorable vacation experiences for our guests, while doing so in a way that best serves the interests of public health.

“Our team members are executing exceptionally well on our return to service, exceeding the expectations of our guests and taking guest satisfaction to new heights. Even at this early stage with intentionally constrained occupancy levels, our voyages are already cash flow positive,” he claimed.

For the cruise segments, revenue per passenger cruise day (PCD) for 3Q21 increased compared to a strong 2019, despite the current constraints on itinerary offerings, which did not include many of the destination rich itineraries offered in 2019.

This increase was partly driven by exceptionally strong on board and other revenues.

Occupancy in 3Q21 was 54%, building consistently month-to-month from 39% in June to 59% in August.

Available lower berth days (ALBD) for the quarter were 3.8 mill, which represents 17% of total fleet capacity. ALBDs are expected to be 10.3 mill for the fourth quarter, which represents 47% of total fleet capacity.

Donald added, “Beyond the enthusiasm of our guests and crew and the unprecedented net promoter scores, it is difficult to demonstrate just how successful our restart effort has been because many cruises, while generating positive cash flow, were limited to scenic cruises without ports of call, and generally priced well below the attractive destination rich cruises we normally offer.

“Carnival Cruise Line resumed operations in July offering Caribbean and Alaska sailings somewhat comparable to prior years and achieved 20% higher revenue per PCD than 2019 peak levels, despite on board credits from cancelled cruises. Even with the unusually short booking window and capacity limitations, the brand achieved occupancy of approximately 70%, which speaks to the strong underlying demand for our core product,” he said.

Carnival’s monthly average cash burn rate for 3Q21 was $510 mill, which was better than previous guidance and in line with the $500 mill monthly average cash burn rate for the first half of this year.

As the company continues to return to service, it expects to incur incremental restart related costs, including the cost of returning ships to guest cruise operations, returning crew members to the ships and maintaining enhanced health and safety protocols.

As a result, the company said that it expected the monthly average cash burn rate for the fourth quarter to be higher than the previous quarters, due to the timing of incremental restart expenditures.

The gradual resumption of the company’s guest cruise operations continues to have a material impact on all aspects of its business, including the company’s liquidity, financial position and results of operations and as a result, expects a net loss on both a US GAAP and adjusted basis for 4Q21 and fiscal year ending 30th November, 2021.

Donald continued, “Being the largest in our industry, it is not surprising that we are now successfully operating at a larger scale than anyone else in the industry. Our protocols have been working well and are enabling us to build occupancy levels as we return more ships to service. Looking forward, we continue to work towards resuming full guest cruise operations by next spring, in time for our important summer season, where we make the bulk of our operating profit.”

Carnival has already announced plans to resume guest cruise operations with 50 ships, or 61% of its capacity, by 30th November, 2021 and 71 ships, or 75% of its capacity, by June, 2022, with more announcements forthcoming for the remaining ships.

While Carnival will benefit from the disposal of 19 smaller, less efficient ships since the beginning of the pause in cruising, the company forecast that its ship operating expenses, on a per ALBD basis, for 2022, will be higher than 2019. This is down to part of the fleet being idle for part of the year, restart related expenses and the cost of maintaining enhanced health and safety protocols.

Donald further commented, “Our booked position for the second half of 2022 is at a new historical high, including our seasonally strong third quarter with all our ships planned to be in operation, despite reduced marketing spending.

“The broader environment for travel, while choppy, has improved dramatically since last summer and we believe it should improve even further by next summer, if the current trend of vaccine roll outs and advancements in therapies continues. We have also opened bookings for further out cruises in 2023, with unprecedented early demand,” he said.

Carnival Corp’s CFO, David Bernstein, noted, “We ended the third quarter with $7.8 bill of liquidity. We believe we have sufficient liquidity to get us back to full operations and continue to be focused on pursuing refinancing opportunities to reduce interest rates and extend maturities.

“To date, through our debt management efforts, we have reduced our future annual interest expense by over $250 mill per year and have completed cumulative debt principal payment extensions of approximately $4 bill, improving our future liquidity position,” he explained.