Carnival Corporation Prepares For The Future
Carnival Corporation & plc recently provided a business update and additional financial information of its second quarter which ended May 31, 2020.
The company noted that 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.
In Germany, AIDA will resume guest cruise operations beginning August 2020.
Carnival also said that it “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.”
It said that as was previously announce it intends to accelerate the removal of ships in fiscal 2020 which were previously expected to be sold over the ensuing years.
Carnival has already 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.”
And he 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.”
Carnival said that its 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% 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.
And Donald observed: “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.”
