Carnival to slash workforce

2020-05-16T10:49:53+00:00 May 16th, 2020|Marketing|

To further strengthen its liquidity, Carnival Corp and its brands are to introduce layoffs, furloughs, reduced work weeks and salary reductions across the company, including for senior management.

These moves will contribute hundreds of millions of dollars in cash conservation on an annualised basis, the group said.

Last month, the company completed a successful financing effort with a heavily oversubscribed offering of senior secured notes, senior convertible notes and common stock, netting $6.4 bill of additional liquidity.

Since the company ceased its cruise operations in early March, workforce changes were largely placed on hold, despite no meaningful revenue, to forestall the financial impact on its employees, while still meeting its fiscal responsibilities.

Carnival also said that it continued to support its travel agent partners by paying commissions on cancelled cruises and on future cruise credits when guests rebook.

In addition to continuing to repatriate the many thousands of crew members still on its ships to their home countries, it said that it was working closely with governments, regulatory agencies, health and infectious disease care experts worldwide to develop best practice public health protocols to address the threat of COVID-19 for when cruising resumes.

Repatriation efforts include chartered flights, as well as re-routing its ships to crew home ports where those ships would not have otherwise sailed. The company is also working closely with its many destination partners, as it continues to evaluate the best options and safety protocols for a return to service.

“Taking these extremely difficult employee actions involving our highly dedicated workforce is a very tough thing to do. Unfortunately, it’s necessary, given the current low level of guest operations and to further endure this pause,” said Carnival Corp President & CEO, Arnold Donald (pictured). “We care deeply about all our employees and understanding the impact this is having on so many strengthens our resolve to do everything we can to return to operations when the time is right.

“It is clear there is tremendous anticipation for a return to cruising. It’s also encouraging to note that the majority of guests affected by our schedule changes want to sail with us at a later date, with fewer than 38% requesting refunds to date.

“Our booking trends for the first half of 2021, which remain within historical ranges, demonstrate the resilience of our brands and the strength of our loyal recurring customer base, of which 66% are repeat cruisers. In addition, we plan to stagger fleet re-entry to optimise demand and operating performance over time,” he added.

The cruise industry is a significant contributor to the US and global tourism sectors, Carnival said, quoting the Cruise Lines International Association (CLIA). The economic impact in the US exceeds well over $50 bill in total contributions.

On a global scale, the economic output, due to the cruise industry, continues to produce new jobs and income, generating a total global output of over $150 bill and supporting over 1.2 mill jobs.

In a note, circulated by Seeking Alpha and written by Stone Fox Capital, the financial analyst claimed that Carnival has the liquidity to survive a prolonged slump in cruising.

The company has promising booking trends later this fiscal year and into FY21. However, Carnival has high debt costs that need to be refinanced in the future.

A stock, such as Carnival Corp, has seen a bigger rebound since 15th March than airline stocks, while the industry isn’t even operating, the analyst said.

The cruise line sector didn’t get financial aid from the US Government, due to the headquarters being located outside of the country and the companies are burning cash every day, despite furloughed employees and idled ships.

Oddly though, the cruise lines appear set to see bookings rebound when the delayed cruises reopen this year, the note said.

While the airlines received financial aid from the US Treasury, the cruise lines had to raise a lot of money to survive in a zero-revenue environment into possibly 2021.

Despite the cruise line delaying initial cruises until 1st August on a handful of ships and further into the Autumn for other ships, the stocks have outperformed the airlines.

Since 15th March, when the domestic market fell apart, Carnival has only fallen by 31% and Royal Caribbean Cruises (RCL) is actually up 5%.

However, by comparison Delta Air Lines (DAL) and United Airlines (UAL) stocks are both down 50% at a time when the airline industry prospects appear far better, the note concluded.