Carnival Optimistic Despite $2B Loss, More Ship Sales Planned
Nine months after Carnival Corporation suspended worldwide cruise operations, the company with only a few ships returned to service continues to report significant financial losses, while management believes the company has the resources to weather the remaining stages of the pandemic.
Speaking to investors and analysts providing a preliminary review of its fourth quarter results for the year ended in November 2020, Carnival CEO Arnold Donald and CFO David Bernstein continues to strike a reassuring tone emphasizing the corporation’s success in getting to this point in the pandemic. The financial losses remained largely the same as the previous quarter, topping $2 billion, with a slightly better than anticipated cash burn rate of $500 million a month.
Carnival Corporation has been aggressive in raising additional cash throughout the pandemic pointing out that the company has raised $19 billion since it suspended operations in the spring of 2020. Also, they converted $1.5 billion of debt through the issuance of common stock. Carnival Corporation ended the fourth quarter in November with $9.5 billion of cash and cash equivalents.
While the company is taking steps towards reactivation of more ships, and Donald said he is optimistic that they might get all ships back in service before the end of 2021, Bernstein said the corporation has, “liquidity in place to sustain ourselves throughout 2021, even in a zero-revenue environment.”
While Carnival expects that its initial cruises will continue to take place with adjusted passenger capacities and enhanced health protocols, they point to signs of pent-up demand and believe the corporation Is in a good position as the business resumes. They point to advanced booking for the later part of 2021 and the first half of 2022 that are within the historical range or are even ahead of 2019. Customer deposits, however, declined by nearly 10 percent and despite having $2.2 billion in deposits, the company says the majority are credits issued for canceled cruises.
Carnival continues to caution that it is unable to predict when the entire fleet will return to normal operations. When asked by one analyst about the timing for the Centers for Disease Controls’ trial cruises Donald said the company is communicating with the CDC but they would need additional guidance from the CDC.
Carnival has taken steps both to manage its operations as well as to move towards a return to service. Arnold highlighted that some ships have returned to North America and visited U.S. ports for the first time since last summer.
They, however, plan to continue to sell ships and delay the delivery of new builds. Previously, they had reported that 18 cruise ships would be sold as part of a plan to accelerate the removal of older and less productive ships. Currently, 15 ships have left the fleet and two others were previously sold but remain under charter to Costa Cruises. Today they increased the number to 19 ships meaning that two more are currently targeted to be sold. These ships collectively represent 13 percent of pre-pause capacity.
New ships are being added to the fleet although none of them have yet entered service. Carnival took delivery of two cruise ships in the fall and two more in December. However, Arnold highlighted that only one more new build will be delivered in 2021. They have deferred four ships that were scheduled for delivery in the second half of 2021 and a total of 16 ships that are on order.
As 2021 begins, the outlook is for the corporation’s cash burn rate to increase to approximately $600 million a month. This is partly due to the timing of some capital expenditures as well as restart expenses and the continuing maintenance of the fleet despite being laid up.