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Carnival Corp. signals hefty Q3 loss, 10 more ships to exit

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Carnival Corp. & plc projected an adjusted net loss of $1.7bn in preliminary third quarter financial results and said 10 more ships will be leaving the fleet for a total of 18.

Advance bookings for second-half 2021 at higher end of historical range

Cumulative advance bookings for the second half of 2021 capacity currently available for sale are at the higher end of the historical range, despite minimal advertising or marketing.

'We continue to take aggressive action to emerge a leaner, more efficient company,' Carnival Corp. & plc President and CEO Arnold Donald said. 'We are accelerating the exit of 18 less efficient ships from our fleet. This will generate a 12% reduction in capacity and a structurally lower cost base, while retaining the most cash generative assets in our portfolio.'

Donald added that with two-thirds of customers repeat cruisers each year, the reduced capacity leaves the company well-positioned to take advantage of pent-up demand for cruise travel, 'as evidenced by our being at the higher end of historical booking curves for the second half of 2021.

'We will emerge with a more efficient fleet, with a stretched out newbuild order book and having paused new ship orders, leaving us with no deliveries in 2024 and only one delivery in 2025, allowing us to pay down debt and create increasing value for our shareholders,' Donald added.

US GAAP net loss was $2.9bn, including $0.9bn of non-cash impairment charges.

Cash burn in line with guidance

Cash burn rate and the expected rate for the fourth quarter are both in line with the previously disclosed guidance — an average $650m per month, the company said on Aug. 14.

Costa Cruises recently resumed sailing, and AIDA Cruises will soon (November).

18 ships exiting are 12% of pre-pause activity/3% of operating income

The 18 ships represent approximately 12% of pre-pause capacity and only 3% of operating income in 2019. The sale of less efficient ships will result in future operating expense efficiencies of approximately 2% per available lower berth day and a reduction in fuel consumption of approximately 1% per ALBD.

Newbuild deliveries adjusted

Carnival Corp. expects only two of the four ships originally scheduled for delivery in 2020, following the start of the pause, to be delivered prior to the end of fiscal 2020. Only five of the nine ships originally scheduled for delivery in fiscal 2020 and 2021 will be delivered prior to the end of fiscal 2021. Nine larger ships and two smaller expedition ships of the 13 ships originally scheduled for delivery prior to the end of fiscal 2022 are expected to be delivered by then.

Based on the actions taken to date and the scheduled newbuild deliveries through 2022, Carnival expects its fleet will be more efficient with a roughly 13% larger average berth size and an average age of 12 years in 2022 versus 13 years, both compared to 2019.

Bookings update

Carnival said bookings in the first half of 2021 reflect expectations of the phased resumption of cruise operations and anticipated itinerary changes. As of Aug. 31, cumulative advance bookings for the second half of 2021 capacity currently available for sale are at the higher end of the historical range and similar to where booking positions were in 2018 for the second half of 2019.

The company believes this demonstrates the long-term potential demand for cruising. Pricing on these bookings is lower by mid-single digits versus the second half of 2019, on a comparable basis, reflecting the effect of future cruise credits from previously canceled cruises being applied.

Bookings continue coming in for 2021 and 2022.

45% take FCCs, 55% seek refunds

As of Aug. 31, approximately 45% of passengers on canceled cruises have taken FCCs while about 55% have requested refunds.

Increased liquidity

Since March, Carnival has raised nearly $12bn through a series of transactions, including, in the third quarter, borrowing $2.8bn in two tranches under a first priority senior secured term loan facility, issuing  $1.3bn in second priority senior secured notes in two tranches and entering into debt holiday amendments that defer certain principal repayments otherwise due through March 2021.

'We have over $8 billion of available cash and additional financing alternatives to opportunistically further improve our liquidity profile,' CFO David Bernstein said. 'We have recently begun to optimize our capital structure with the early extinguishment of debt on favorable economic terms and the extension of debt maturities. Once we fully resume guest cruise operations, we expect our cash flow potential will build a path to further strengthen our balance sheet and return us to an investment grade credit rating over time.'

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