Carnival Corporation Provides Key Business Update

Carnival Corp. Logo

Carnival Corporation has provided business update and additional financial information for the second quarter ended May 31, 2020.

The company said it 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.

The operation resumption will start with AIDA in August, as announced yesterday. 

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, Carnival said.

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."

Since the pause in guest operations, the company has taken significant actions to preserve cash and secure additional financing to maximize its liquidity, according to a press release.

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:

Carnival Corporation 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.

In addition, 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.

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.

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