Carnival’s operational cash turns positive in heavy loss

2022-06-29T10:58:25+00:00 June 27th, 2022|Finance|

Carnival Corp has revealed a US GAAP net loss of $1.8 bill and adjusted net loss of $1.9 bill for the second quarter of this year.

However, cash from operations turned positive during the period, the company said.

The 2Q22 ended with $7.5 bill of liquidity, including cash, short-term investments and borrowings available under the company’s revolving credit facility.

Revenue increased by nearly 50% in 2Q22, compared to the previous quarter, reflecting continued sequential improvement. For the cruise segments, revenue per passenger cruise day (PCD) decreased slightly compared to a strong 2019.

Adjusted EBITDA for 2Q22 was a negative $0.9 bill, although an improvement over the first quarter.

During the period, Carnival issued $1 bill aggregate principal amount of senior unsecured notes, due 2030, intended to refinance various 2023 debt maturities and invested $0.5 bill in capital expenditures.

In addition, the company repaid $0.2 bill of debt principal and incurred $0.4 bill of interest expense, net during the quarter.

Occupancy in the period was 69%, an increase from 54% in 1Q22, while customer deposits increased $1.4 bill to $5.1 bill as of 31st May, 2022 from $3.7 bill as of the end of February.

Carnival also reported that booking volumes for all future sailings during 2Q22 were nearly double those of the first quarter; the company noted that these were its best quarterly booking volumes since the beginning of the pandemic.

As previously announced, effective 1st August, Arnold Donald, President and CEO, is being appointed Vice Chair of the Boards of Directors. Josh Weinstein, current COO Josh Weinsten will assume the role of President and CEO of Carnival Corp.

At the same time, Weinstein will also assume the role of Chief Climate Officer and become a Board Director.

Donald said, “With cash from operations turning positive and the company heading in the right direction, now is the time to transition leadership to the next generation. Josh Weinstein has the skill set ideally suited to take this company forward, including strong operating experience and in-depth industry knowledge cultivated over the past two decades. I am confident our positive momentum will continue under Josh’s leadership and I remain confident in the long-term future of our company.”

Weinstein commented, “I am honoured to lead this company as we push forward with a relentless long-term focus on driving revenue and returns to improve our balance sheet, while ensuring each brand provides an authentic cruise experience that resonates with their unique guest base, delivering value for our shareholders and our other many stakeholders.

“It is truly humbling to support our exceptionally talented team—150,000 strong ship and shore—in this effort. They’ve accomplished so much during our restart, with incredible determination, perseverance and integrity. This gives me tremendous confidence and optimism about our future,” he added.

Donald added, “We are aggressively, yet thoughtfully, ramping up to full operations with over 90% of the fleet now in service. We are driving occupancy higher, while at the same time significantly increasing available capacity, resulting in a nearly 50% sequential improvement in revenue in the second quarter, despite facing constantly changing and far more restrictive protocols than broader society and travel at large.

“Carnival Cruise Line, our largest brand, achieved consistently positive adjusted EBITDA beginning in March. Carnival Cruise Line also became our first brand to sail its entire fleet in May and is expecting occupancy to approach 110% during our third quarter,” he said.

As of 24th June, 2022, 91% of the company’s capacity is in guest cruise operation as part of its ongoing return to service. Five of the company’s nine brands now have their entire fleet back in guest cruise operations, including Carnival Cruise Line, which became the first major cruise line in the US to celebrate its entire fleet entering service.

While the company’s adjusted cruise costs, excluding fuel per ALBD, have benefited from the sale of smaller-less efficient ships and the delivery of larger-more efficient ships, this benefit is offset by a portion of its fleet being in pause status for part of the year, restart related expenses, an increase in the number of drydocking days, the cost of maintaining enhanced health and safety protocols, inflation and supply chain disruptions.

The company said that it anticipated that some of these costs and expenses will end in 2022. In addition, Carnival continues to expect to see a significant improvement in adjusted cruise costs, excluding fuel per ALBD, from the first half to the second half of this year with a mid-teens increase for the full year 2022, compared to 2019.

The global pandemic and its ongoing effects, inflation and higher fuel prices are all having a material impact on the company’s business, including its results of operations, liquidity and financial position. In addition, as is the case with the travel and leisure sector generally, the company is making meaningful progress in resolving the challenges it is experiencing with on board staffing, which has resulted in occupancy constraints on certain voyages.

Carnival further said that it expected a net loss for the third quarter. For the full year, the company continued to forecast a net loss. It believed that adjusted EBITDA will improve with the ongoing resumption of guest cruise operations and continued to expect improvement in occupancy throughout 2022 until it returns to historical levels in 2023.

Positive adjusted EBITDA is forecast for the third quarter of this year.

Carnival Cruise Line is teaming up with Costa Cruises to create a new concept for Carnival’s North American guests when COSTA® by CARNIVAL® debuts in the spring of 2023 and ’Costa Venezia’ joins the Carnival fleet. ’Costa Venezia’ will be followed by ’Costa Firenze’ arriving in the spring of 2024. Carnival will operate the ships.

In addition, Carnival Cruise Line announced earlier this month that ’Costa Luminosa’ will join the fleet later this year and will start operations as ’Carnival Luminosa’ in November, 2022. This will allow Carnival to finally start itineraries from Brisbane and have two ships operating in Australia for its high season.

Furthermore, recently the company announced the removal of another smaller-less efficient ship from the fleet. This brings the planned removal to 23 smaller-less efficient ships since the beginning of the pause in guest cruise operations, further reducing the company’s rate of capacity growth.

Donald added, “We continue to build on our fleet optimisation efforts by reallocating capacity in a highly differentiated way to strengthen return on invested capital across our portfolio. In addition, we continue to further refine our fleet and have announced the removal of an additional smaller-less efficient ship. Upon returning to full operations, nearly a quarter of our capacity will consist of newly delivered ships, expediting our return to profitability.”

Addressing booking, Donald said; “It is reinforcing to see continued strength in demand with our guests overcoming far more restrictive protocols than broader society and travel at large, leading to a near doubling of booking volumes since last quarter with near-term bookings even outpacing 2019. We were encouraged by close-in demand and remain focused on optimising occupancy while preserving long term pricing.”

“As friction from protocols is removed and society becomes increasingly more comfortable managing the virus, we expect to see demand continue to build, as we have already seen with the strength in Carnival Cruise Line’s closer-to-home cruises,” he said.

Cumulative advanced bookings for 2023 continue to be both at the higher end of the historical range and at higher prices, with or without FCCs, normalised for bundled packages, as compared to 2019 sailings.

Carnival claimed that it had made significant progress over the past 15 years reducing its carbon emission intensity and achieving its 2020 goal three years early – in 2017. Significant progress was also made towards its 2030 carbon intensity reduction goals of 40% from a 2008 baseline, measured in both grams of CO2e per ALB-km and Kg of CO2e per ALBD.

The company has decided to update the baseline year for both goals to 2019 from 2008. As a result, both 2030 goals now require a 20% improvement from 2019. With the updated baseline year, the company strengthened its goal measured in Kg of CO2e per ALBD since the initial 2030 goal would only have required a further 15% reduction from 2019 levels. Its goal measured in grams of CO2e per ALB-km remains the same.

Achieving these 2030 goals will require:

  • delivery of larger-more efficient ships, as part of its ongoing newbuilding programme, some of which will replace existing ships in its fleet
  • investing in energy efficiency projects for its existing fleet
  • designing more energy efficient itineraries
  • investing in port and destination projects.

Other recent highlights included:

  • Carnival Cruise Line broke ground on its new cruise port destination on Grand Bahama Island, expected to open in late 2024
  • Carnival Cruise Line saw its busiest booking week in the company’s history, for the one-week period of 28th March -3rd April
  • Cunard saw its busiest booking day in a decade for the first day of bookings for new ship ’Queen Anne’
  • Holland America Line’s ’Volendam’is being used to provide temporary housing for Ukrainian refugees through September 2022.