UPDATE 7/13: The total for those ships leaving the fleet are roughly $1 billion. The way it will break down is they will sell 13 ships but will only lose 11 from the global fleet. The two other ships will be transferred from Princess to P&O Australia.
In addition to AIDA starting up soon, strong demand for 2021, Carnival sold one ship in June, has fixed agreements for the disposal of five ships and preliminary agreements for three more in the next 90 days.
Carnival Corporation & plc (NYSE/LSE: CCL; NYSE: CUK) provides a business update and additional financial information for the second quarter ended May 31, 2020.
Business Update
In the face of the global impact of COVID-19, the company paused its guest cruise operations in mid-March. The company expects 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 to provide guests with unmatched joyful vacations 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 to resume cruise operations
AIDA previously announced it will resume guest cruise operations from ports in Germany beginning August 2020 with three of its ships, making it the first of the company’s nine cruise brands to resume guest cruise operations. AIDA 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, routing systems on arrival, departure and onboard, increased mitigation and sanitation efforts in all cabins and public areas, as well as closely managing capacities at onboard experiences. These enhanced measures have been developed with advice from medical experts and align with the current guidance from the World Health Organization (“WHO”) and the German Robert Koch Institute (“RKI”), as well as other governmental and health authorities.
Capacity reduced by ship delivery deferrals and 13 expected ship dispositions
The company expects 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. As previously announced, the company intends to accelerate the removal of ships in fiscal 2020 which were previously expected to be sold over the ensuing years. The company sold one ship during June 2020 and has agreements for the disposal of five ships and preliminary agreements for an additional 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 expected to leave the fleet represent a nearly nine percent reduction in current capacity. The company currently expects only five of the nine ships originally scheduled for delivery in fiscal 2020 and fiscal 2021 will be delivered prior to the end of fiscal year 2021. In addition, the company expects later deliveries of ships originally scheduled for fiscal 2022 and 2023.
Carnival Corporation & plc President and Chief Executive Officer Arnold Donald noted, “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 billion on an annualized basis and reduced capital expenditures also by more than $5 billion over the next 18 months. We have secured over $10 billion 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.”
Donald added, “We will emerge a leaner, more efficient company to optimize cash generation, pay down debt and position us to return to investment grade credit over time providing strong returns to our shareholders.”
Maximizing Liquidity
Successfully raised over $10 billion through a series of financing transactions
Since the pause in guest operations, the company has taken significant actions to preserve cash and secure additional financing to maximize its liquidity. While maintaining compliance, environmental protection and safety, the company 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 billion for 2020 and expects to reduce its newbuild capital expenditures by over $600 million for 2020, (net of export credit facilities). Additionally, since March, the company has raised over $10 billion through a series of financing transactions, including transactions that have occurred in the last three weeks, as follows:
- Borrowed an aggregate principal amount of $2.8 billion in two tranches under a first priority senior secured term loan facility on June 30, 2020
- Negotiated Debt Holiday amendments, deferring certain principal repayments otherwise due through March 2021. (Certain export credit agencies have offered a 12-month debt amortization and financial covenant holiday (“Debt Holiday”))
In addition, the company has $8.8 billion of committed export credit facilities that are available to fund ship deliveries originally planned through 2023.
Carnival Corporation & plc Chief Financial Officer and Chief Accounting Officer David Bernstein noted, “Quickly recognizing 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 approximately $650 million. This rate includes approximately $250 million 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 continues to explore opportunities to further reduce its monthly cash burn rate.
The pause in guest operations is continuing to have material negative impacts on all aspects of the company’s business. The longer the full or partial pause in guest operations continues, the greater the impact on the company’s liquidity and financial position. The company continues to expect a net loss on both a U.S. GAAP and adjusted basis for the second half of 2020.
Update on Bookings
Demand continues for 2021 sailings
The company’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 onboard credits and reduced or refundable deposits. In addition, the company is providing flexibility to guests with bookings on sailings cancelled due to the pause by offering guests the flexibility of enhanced future cruise credits (“FCC”) or an election for a refund in cash. Enhanced FCCs increase the value of the guest’s original booking or provide incremental onboard credits. As of June 21, 2020, approximately half of guests affected have requested cash refunds. Despite substantially reduced marketing and selling spend, the company continues to see demand from new bookings for 2021. For the most recent booking period, the first three weeks in June 2020, almost 60 percent of 2021 bookings were new bookings. The remaining 2021 booking volumes resulted from guests applying their FCCs to specific future cruises.
As of June 21, 2020, cumulative advanced bookings for the full year of 2021 capacity currently available for sale remain within historical ranges at prices that are down in the low to mid-single digits range, on a comparable basis, including the negative yield impact of FCCs and onboard credits applied.
As of May 31, 2020, the current portion of customer deposits was $2.6 billion, the majority of which are FCCs. $121 million of the company’s customer deposit balance relates to third quarter sailings and $353 million relates to fourth quarter sailings. The company continues to expect any decline in the customer deposits balance in the second half of 2020, all of which is expected to occur in the third quarter, to be significantly less than the decline in the second quarter of 2020.
Protecting the Health and Safety of Guests and Team Members
Throughout the pause in its guest cruise operations, the company has acted to protect the health and safety of guests and shipboard team members. The company returned over 260,000 guests to their homes, coordinating with a large number of countries around the globe. In addition, the company worked around the clock with various local governmental authorities, utilized its ships and chartered hundreds of planes to repatriate shipboard team members as quickly as possible. The company is extremely pleased with its ability to successfully repatriate approximately 77,000 of its shipboard team members to more than 130 countries around the globe, which is substantially all of its onboard workforce other than the safe manning team members who will remain on the ships, and thanks the numerous governments who worked closely with the company during the repatriation process.
Donald commented, “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.”
Active consultation with science and medical experts
Throughout the pause in guest cruise operations, the company has been consulting and assembling the best minds in medical science, public health and infectious disease. These individuals include a robust line-up of world renowned 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 coordination with the World Travel and Tourism Council, the company is hosting an online Global Scientific Summit on COVID-19 on July 28, a forum which is open to the public and free of charge. Speakers and panelists include the company’s expert advisors, representing a diverse range of science, research and business backgrounds, including amongst others, members of Scientists to Stop COVID-19, who have volunteered to participate. The company is grateful to bring together a select group of science and medical experts who will bring such relevant insight into COVID-19.