Carnival Corp. Accelerates Ship Disposals and Delays New Builds
Carnival Corporation detailed an aggressive fleet management program for its existing ships and new builds as part of the company’s strategy. Telling investors that it had the resources both to continue to manage through the current suspension of operations, as well as to quickly resume cash generation from operations, Carnival’s CEO said going forward the world’s largest cruise corporation would be a leaner organization. It will be at least 2022 before the company returns to pre-COVID-19 capacity levels.
As part of the company’s business update, CEO Arnold Donald said the company was currently completing nine dispositions, up from a previously announced six ship sales. It expects all of the ships to leave the fleet within 90 days. Carnival said that a total of 13 ships will leave the fleet representing nearly a nine percent reduction in total capacity from the fleet that numbered 104 cruise ships in operation before the onset of COVID-19.
The company declined to offer specific details such as how many of the ships would “recycled,” saying only that it seeks not to sell ships into competitive situations. However, Carnival Corp. recorded a nearly $1 billion impairment charge so far in 2020 based on an undiscounted cash flow analyses on some ships in the fleet. This is believed to include writing down the book value of the ships to be sold.
Historically Carnival was selling three to four ships a year seeking to remove ships that were producing the lowest returns and passenger satisfaction. Typically that was the older ships in the fleet. Recently, the company said that it was working on six dispositions, announcing the first two as the sale of Costa Cruises’ Costa Victoria, which was built in 1996 and will be dismantled in Italy, and P&O Cruise’s Oceania, which was built in 2000 and is currently en route to Greece believed to have been sold for future operations.
The doubling of the total number of dispositions includes four previously announced vessel sales. At the end of 2019, the U.K.’s Cruise and Maritime Voyages agreed to buy two cruise ships from Carnival’s P&O Cruises Australia for delivery in early 2021. Costa Cruises also sold two of its older ships to CSSC Carnival Cruise Shipping Ltd., a joint venture established with the China State Shipbuilding Corp., but has continued to operate both of those ships on charters from the joint venture.
Carnival Corporation is also rescheduling its new cruise ship deliveries to slow the introduction of capacity. It now plans to take delivery on only two cruise ships in 2020 and three in 2021, down from an original schedule of nine ships over the next two years. Carnival, however, said that it has not canceled any new ship orders, which at the end of 2019 totaled 16 ships scheduled for delivery through 2025.
Currently, 53 of the company’s ships are in full pause status with the remainder of the fleet expected to reach full pause status during the current quarter. Carnival said that 50 of its ships had sailed over 400,000 nautical miles as part of the crew repatriation efforts and that a total of 77,000 crew members had been returned home with another 3,000 to happen this month.
Discussing the time for a resumption of service, Carnival said it was dependent on regulators, local authorities, and people’s willingness to travel and again gather in groups. Beyond the announced cruises starting from Germany in August, Carnival is also close to agreements with Italy as potentially another market to resume operations and it is in discussions with its partners in Asia. The company feels that its brands with a strong local market presence are in the best position to lead a resumption in operations.