Still burning cash, Carnival hopes for resumption of U.S. cruises this year

Written by Nick Blenkey
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In a business update released today, the world’s largest cruise ship operator, Carnival Corporation & plc (NYSE/LSE: CCL; NYSE: CUK) reported that its monthly average cash burn rate for the third quarter 2020 was $770 million, in line with what had been anticipated. It now expects the monthly average cash burn rate for the fourth quarter of 2020 to be approximately $530 million. This results in an average monthly burn rate for the second half of the year of $650 million as previously disclosed.

“We have come full circle from initiating a suspension in the early days of the pandemic, to transitioning the fleet into a pause status, right sizing our organization and, now, embarking on the phased resumption of guest operations, underway in two of our world leading cruise brands, Costa in Italy and AIDA in Germany,” said President and CEO Arnold Donald. “We have accelerated the sale of less efficient ships, enabling us to capitalize on pent up demand on reduced capacity and structurally lower our cost base, while retaining our most cash generating assets. We are taking aggressive actions managing the balance sheet and reducing capacity to position us to weather this disruption and also emerge a leaner, more efficient company, reinforcing our industry leading position.”

RESUMPTION OF U.S. CRUISES THIS YEAR?

The company says it is encouraged that the Centers for Disease Control’s (CDC) No Sail Order was extended by only one month to October 31, 2020, the same date as the industry’s end of voluntary suspension of passenger operations.

“For many months, cruise lines have worked with experts worldwide to develop unprecedented public health protocols and are hopeful these measures will lead to a gradual, phased resumption of cruising by the end of the year,” says Carnival. “There is constant dialogue ongoing in the United States for a potential cruise restart and the company is hopeful that the industry is in a position to collaborate with the CDC and administration to resume cruising from the United States this year.”

FUTURE FLEET SIZE

Carnival 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. Since the pause in guest operations, the company has accelerated the removal of ships in fiscal 2020 which were previously expected to be sold over the ensuing years. The company now expects to dispose of 18 ships, 10 of which have already left the fleet. In total, the 18 ships represent approximately 12% of pre-pause capacity and only three percent of operating income in 2019. The sale of less efficient ships will result in future operating expense efficiencies of approximately two percent per available lower berth day (ALBD) and a reduction in fuel consumption of approximately one percent per ALBD.

The company 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, including Enchanted Princess which was delivered last week. The company currently expects only five of the nine ships originally scheduled for delivery in fiscal 2020 and 2021 to be delivered prior to the end of fiscal year 2021. The company currently expects nine cruise ships and two smaller expedition ships of the 13 ships originally scheduled for delivery prior to the end of fiscal year 2022 to be delivered by then.

Based on the actions taken to date and the scheduled newbuild deliveries through 2022, Carnival says its fleet will be more efficient with a roughly 13 percent larger average berth size per ship and an average age of 12 years in 2022 versus 13 years, in each case as compared to 2019.

Read the complete business update HERE.

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