Carnival Corp has provided a business update and additional financial information for the second quarter ended 31st May, 2020.
The company said it expected to resume guest operations, with ongoing collaboration from both government and health authorities, in a phased manner.
Specific brands and ships are expected to return to service over time in a manner consistent with the company’s highest priorities, which are compliance, environmental protection and the health, safety and well-being of its guests, crew and the communities its ships visit.
AIDA has announced it will resume guest cruise operations from German ports at the beginning of August, 2020 with three of its ships, making it the first of Carnival’s nine cruise brands to resume cruising operations.
The brand will introduce additional safety and protective measures, which will include pre-boarding health questionnaires and temperature checks for both guests and crew, physical distancing guidelines, routeing systems on arrival, departure and on board, increased mitigation and sanitation efforts in all cabins and public areas, as well as closely managing capacities at on board experiences.
These enhanced measures have been developed with advice from medical experts and align with the current guidance from the World Health Organisation (WHO) and the German Robert Koch Institute (RKI), as well as other governmental and health authorities.
Carnival 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. It also intended to accelerate the removal of ships in fiscal 2020, which were previously expected to be sold in the coming years.
The company sold one ship in June, 2020 and has agreements for the disposal of five ships and preliminary agreements for an another three ships, all of which are expected to leave the fleet in the next 90 days. These agreements are in addition to the sale of four ships, which were announced prior to fiscal 2020.
In total, the 13 ships are expected to leave the fleet, representing a nearly 9% reduction in current capacity. The company also expected only five of the nine ships originally scheduled for delivery in fiscal 2020 and fiscal 2021 to be delivered, prior to the end of fiscal year 2021. In addition, the company expected later deliveries of ships originally scheduled for fiscal 2022 and 2023.
Carnival Corp President and CEO, Arnold Donald (pictured), explained, “We have been transitioning the fleet into a prolonged pause and right sizing our shoreside operations. We have already reduced operating costs by over $7 bill on an annualised basis and reduced capital expenditures also by more than $5 bill over the next 18 months.
“We have secured over $10 bill of additional liquidity to sustain another full year with additional flexibility remaining. We have aggressively shed assets while actively deferring new ship deliveries. We are working hard to resume operations while serving the best interests of public health with our way forward informed through consultation with medical experts and scientists from around the world.
“We will emerge a leaner, more efficient company to optimise cash generation, pay down debt and position us to return to investment grade credit over time providing strong returns to our shareholders,” he said.
Since the pause in guest operations, the company has taken several initiatives to preserve cash and secure additional financing to maximise its liquidity. While maintaining compliance, environmental protection and safety, Carnival has significantly reduced ship operating expenses by transitioning ships into paused status. The company also reduced its administrative expenses, non-newbuild capital expenditures by $1.3 bill for 2020 and expects to reduce its newbuild capital expenditures by over $600 mill for 2020, (net of export credit facilities).
In addition, since March, the company has raised over $10 bill through a series of financing transactions, including those that have occurred in the last three weeks, as follows:
- 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.
- Negotiated debt holiday amendments, deferring certain principal repayments otherwise due through March, (Certain export credit agencies have offered a 12-month debt amortisation and financial covenant holiday (debt holiday)).
In addition, the company has $8.8 bill of committed export credit facilities that are available to fund ship deliveries originally planned through 2023.
Carnival Corp CFO and Chief Accounting Officer, David Bernstein, added, “Quickly recognising the financial situation, we took swift action to improve our liquidity by reducing expenses and leveraging our strong balance sheet to complete several capital transactions”.
During the pause in guest operations, the monthly average cash burn rate for the second half of 2020 is estimated to be around $650 mill. This 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.
The company claimed it continued to explore opportunities to further reduce this monthly cash burn rate.
Carnival’s brands have announced various incentives and flexibility for certain booking payments on select sailings to support guest confidence in making new bookings. These incentives vary by brand and sailing and include on board credits and reduced or refundable deposits.
In addition, the company has provided flexibility to guests with bookings on cancelled sailings, due to the pause by offering guests the flexibility of enhanced future cruise credits (FCC) or an election for a refund in cash. The enhanced FCCs increase the value of the guest’s original booking or will provide incremental on board credits. As of 21st June, 2020, about half of guests affected have requested cash refunds.
Despite substantially reduced marketing and selling spend, the company said that it continued to see demand from new bookings for 2021. For example, in the first three weeks in June, 2020, almost 60% of 2021 bookings were new bookings. The remaining 2021 booking volumes resulted from guests applying their FCCs to specific future cruises.
As of 31st May, 2020, the current portion of customer deposits was $2.6 bill, the majority of which are FCCs. Some $121 mill of the company’s customer deposit balance relates to third quarter sailings and $353 mill relates to fourth quarter sailings. The company expected declines in customer deposits’ balance in 2H20, all of which are expected to occur in 3Q20, to be significantly less than the decline in 2Q20.
Throughout the cessation, Carnival returned over 260,000 guests to their homes, co-ordinating with a large number of countries worldwide. In addition, the company worked around the clock with various local governmental authorities, used its ships and chartered hundreds of planes to repatriate shipboard team members as quickly as possible, it claimed.
The company said it was extremely pleased with its ability to successfully repatriate about 77,000 of its shipboard team members to more than 130 countries around the globe, which is substantially all of its on board workforce other than the safe manning team members who will remain on the ships, and thanked the numerous governments who worked closely with the company during the repatriation process.
Donald added, “I could not be more proud of how collectively our team has handled this. We looked after our guests, each other and the over 700 places we go each year. Thanks to our crew for continuing to exceed guest expectations through challenging circumstances and our shoreside operations for working 24/7 to enhance our liquidity and to repatriate our guests and our crew. Also, thanks to our loyal guests, travel partners, shareholders and other stakeholders for their support during this challenging time.”
Throughout the period, the company has been consulting and assembling the best minds in medical science, public health and infectious disease. These individuals include a line-up of medical, epidemiology and public health experts to provide the company with the latest science and medical evidence to inform practical, adaptable and science-based solutions for detection, prevention and mitigation of COVID-19.
In co-ordination with the World Travel and Tourism Council (WTTC), the company is hosting an online Global Scientific Summit on COVID-19 on 28th July, a forum which is open to the public and free of charge.
In another announcement, Carnival has announced the pricing of its first-priority senior secured term loan facility.
This consists of a $1,860 mill tranche and a €800 mill tranche, with a maturity of five years.
The US dollar tranche will be issued at a price equal to 96% of its face value and will bear interest at a rate per annum equal to adjusted LIBOR (with a 1% floor) plus 7.5%.
As for the euro tranche, this will be issued at a price equal to 96% of its face value and will bear interest at a rate per annum equal to EURIBOR (with a 0% floor) plus 7.5%.
Both tranches will be pre-payable, in whole or in part, at the company’s option at a price equal to the face value, plus a customary make-whole amount for the first year after closing, 102% of the face value for the second year after closing and par thereafter.
Obligations under the term loan facility will be guaranteed by Carnival plc and the same subsidiaries that currently guarantee, and will be secured on a first-priority basis by the same collateral that currently secures, Carnival Corp’s 11.5% first-priority senior secured notes, due 2023.
The term loan facility was due to close on 30th June and Carnival intends to use the net proceeds for general corporate purposes, which includes the re-payment of near-term debt maturities.
As for the second quarter figures, for obvious reasons, they do no make great reading.
Carnival reported a loss of $4.4 bill for the period, or $6.07 per share, on revenues of $740 mill, compared to net income of $451 mill, or $0.65 per share, on revenues of $4.8 bill for 2Q19.
The brands carried only 426,000 passengers this year to the end of May, compared to 3.1 mill for the same period in the previous year.
Operating costs for 2Q20 were $2.5 bill, compared to $4.2 bill at the same stage last year.
For the first six-months of the fiscal year, Carnival reported a loss of $5.2 bill on revenues of $5.5 bill, compared to net income of $787 mill on revenues of $9.5 bill for 1H19.
