Nine ships to exit
In mid-June, the company signaled plans to sell six ships that would exit within 90 days. One ship was sold, and agreements are in place for the disposal of five ships and preliminary agreements for an additional three ships, all expected to leave the fleet in the next 90 days.
The nine ships are in addition to the sale of four ships announced prior to fiscal 2020.
9% capacity reduction
In total, the 13 ships expected to leave the fleet represent a nearly 9% reduction in current capacity.
Only a few to be ‘recycled’
Most are going to deployment in other markets; ‘just a few’ are expected to be scrapped, CFO David Bernstein said — or, as he preferred to call it, ‘recycled.’
Sixteen newbuild deliveries will be delayed, by an average of five months, Bernstein said.
Carnival currently expects only five of the nine ships originally scheduled for delivery in fiscal 2020 and fiscal 2021 will be delivered by the end of fiscal 2021, two this year and three next. In addition, the company expects later deliveries of ships originally scheduled for fiscal 2022 and 2023.
No dicussion about newbuild cancellations
The company is not planning or holding discussions about canceling any newbuild orders, Carnival Corp. & plc President and CEO Arnold Donald said.
Reduced operating costs, increased liquidity
‘We have been transitioning the fleet into a prolonged pause and right-sizing our shoreside operations,’ Donald recapped. ‘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.’
Monthly average cash burn $650m
Carnival reiterated that during the pause operations, the monthly average cash burn rate for the second half of 2020 is estimated at approximately $650m. This includes approximately $250m 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). It also excludes scheduled debt maturities.
The company said it continues to explore opportunities to further reduce its monthly cash burn rate.
Demand for 2021 cruises
As of June 21, approximately half of passengers on canceled sailings have requested cash refunds. Despite substantially reduced marketing and selling spend, Carnival said it continues to see demand from new bookings for 2021. For the most recent booking period, the first three weeks in June, almost 60% of 2021 bookings were new bookings. The remaining 2021 booking volumes resulted from future cruse credits being applied to specific future cruises.
As of June 21, cumulative advanced bookings for full year 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 on-board credits applied.
$2.6bn in customer deposits
As of May 31, the current portion of customer deposits was $2.6bn, the majority FCCs. $121m of the company’s customer deposit balance relates to third quarter sailings and $353m 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.