Carnival Corp. Posts $4.4 Billion 2Q Loss, Growing 2021 Bookings

By Susan J. Young Jun 18, 2020 9:09am

Revealing the serious financial effects of the pandemic, Carnival Corporation, the world's largest cruise company, reported a net loss of $4.4 billion U.S. GAAP net loss for the second quarter ended May 31, 2020, or a loss of $6.07 diluted earnings per share. Second quarter 2020 adjusted net loss was $2.4 billion or a net loss of $3.30 adjusted earnings per share. The "pause" in guest-cruise operations for most of the second quarter was also reflected in total second quarter revenue of $700 million, down from $4.8 billion in same quarter a year ago.

But there were positive takeaways, too:

Despite substantially reduced marketing and selling spend, Carnival is seeing growing demand from new bookings for 2021
For the six weeks ending May 31, 2020, approximately two-thirds of 2021 bookings were new bookings (with the other third being FCC use)

Interesting Takeaways

Carnival Corp. said it's "unable to definitively predict when it will return to normal operations. As a result, the company is currently unable to provide an earnings forecast."

It reported that the pause in guest operations is continuing to have material negative impacts on all aspects of its business, and the longer that continues, the greater impact on liquidity and financial position.

In its press release, Carnival Corp. also said it expects a net loss on both a U.S. GAAP and an adjusted income basis for the second half of 2020.

Earnings Tidbits

Here are other tidbits revealed in Carnival Corp.'s latest earnings report:

Cash burn rate in the second quarter 2020 was generally in line with the previously disclosed expectation
Second quarter 2020 ended with $7.6 billion of available liquidity
Carnival will further enhance future liquidity such as through refinancing scheduled debt maturities
In addition, the company has $8.8 billion of committed export credit facilities that are available to fund ship deliveries originally planned through 2023
Total deposits from customers at May 31, 2020 amounted to $2.9 billion, including $475 million related to cruises

Resuming Service?

Carnival said it "expects to resume guest operations, after collaboration with both government and health authorities, in a phased manner, with specific ships and brands returning to service over time to provide its guests with enjoyable vacation experiences."

Key points cited by Carnival:

The company anticipates that initial sailings will be from a select number of easily accessible home ports
The company 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
Optimizing capacity, Carnival also intends to accelerate the removal of ships in fiscal 2020; these vessels were previously expected to be sold in future years.
The company already has preliminary agreements for the disposal of six ships expected to leave the fleet in the next 90 days
It's also currently working toward additional agreements to remove ships

Health and Safety Protocols

In preparation for cruise resumption and with the intent to provide guests with a safe/healthy environment, Carnival Corp. said it's proactively consulting and working in close cooperation with various medical policy experts and public health authorities to develop enhanced procedures and protocols for health and safety onboard its ships.

Carnival noted that "a comprehensive restart protocol" may include areas such as medical care, screening, testing, mitigation and sanitization, addressing arrival and departure at cruise terminals, the boarding and disembarkation process, onboard experiences and shore excursions.

Update on Bookings

The company's brands have announced various incentives and flexibility for certain booking payments on select sailings to support guest confidence in making new bookings. They vary by brand and sailing and include onboard credits and reduced or refundable deposits. In addition, the company is providing flexibility to guests booked on now-cancelled sailings by allowing them to receive enhanced Future Cruise Credits (FCC) or choose a cash refund. Enhanced FCCs increase the value of the guest's original booking or provide incremental onboard credits.

Approximately half of guests affected have requested cash refunds. And, as noted previously, Carnival is seeing growing demand from new bookings for 2021 (two-third of those not related to FCC usage).

As of May 31, 2020, the current portion of customer deposits was $2.6 billion with $121 million relating to third quarter sailings and $353 million relating to fourth quarter sailings.

Carnival said: "The company expects 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."

Pricing of Voyages

As of May 31, 2020, Carnival Corp's cumulative advanced bookings for the full year of 2021 capacity currently available for sale are within historical rates in volume. But those bookings are at prices that are down in the low to mid-single digits range including the negative yield impact of FCCs and onboard credits applied, on a comparable basis.

While full year 2021 booking volumes for the six weeks ending May 31, 2020 were running meaningfully behind the prior year, the company also saw an improvement in booking volumes for the six weeks ending May 31, 2020 compared to the prior six weeks.

COVID-19 Response

The line "paused" its cruise operations in mid-March. The company said it has acted to ensure the health and safety of guests and crew; optimize the pause in guest operations; and maximize its liquidity position.

Carnival Corp. has returned more than 260,000 guests to their homes, coordinating with a large number of countries around the globe. The company company chartered aircraft, utilized commercial flights and even used its ships to sail home guests who could not fly.

The company is working with various local governmental authorities to repatriate shipboard team members as quickly as possible. Some 49 cruise ships have traveled more than 400,000 nautical miles and the company has chartered hundreds of planes to repatriate approximately 60,000 of its shipboard team members to more than 130 countries.

Carnival said: "The company expects substantially all of the approximately 21,000 remaining shipboard team members to be able to return home by the end of June." Safe manning team members, though, will remain on the ships to ensure their safe operations. Carnival said most shipboard team members have been provided with single occupancy cabin accommodations, many with a window or balcony. Shipboard team members have access to fresh air and other areas of the ship, movies and Internet, plus counseling.

Optimizing the Pause

Carnival estimates that ongoing ship operating and administrative expenses will run approximately $250 million per month once all ships are in paused status. The company continues to seek ways to further reduce this monthly requirement. While maintaining safety, environmental protection and compliance, the company said it's significantly reduced ship operating expenses, including crew payroll, food, fuel, insurance and port charges by transitioning ships into paused status, either at anchor or in port and staffed at a safe manning level.

Currently 62 of the company's ships are in their final expected "pause location,: The company expects substantially all its ships to reach their full pause status during the third quarter. Carnival has also reduced its marketing and selling expenses. Throughout the company, including senior management, it's had layoffs, furloughs, reduced work weeks and salary and benefit reductions.

It's instituted a hiring freeze across the organization, significantly reduced consultant and contractor roles. It's also reduced capital expenditures and estimates $300 million of non-newbuild capital expenditures during second half 2020; that largely consists of previously committed expenditures.

Also notable? The company previously had four ships scheduled to be delivered between May and October of 2020. It said "COVID-19 has impacted shipyard operations and will result in delivery delays of the ships this year" and it's working with the shipyards on revised timing.

The company has committed future financing, comprised of ship export credit facilities, associated with these new builds.

Continuing to Maximize Liquidity

In its release, the company summarized a litany of steps to maximize liquidity, such as having completed offerings of $6.6 billion through the issuance of first-priority senior secured notes, senior convertible notes and Carnival Corporation common stock.

As of May 31, 2020, the company had $7.6 billion of available liquidity. In addition, the company has $8.8 billion of committed export credit facilities that are available to fund ship deliveries originally planned through 2023.

During the pause in guest operations, the monthly average cash burn rate for the second half of 2020 is estimated to be approximately $650 million.

While the second quarter earnings report was expected to be bleak on the earnings front, and it was, Carnival Corp. is showing good staying power in new advance bookings, shoring up its liquidity, to carry it through the tough times, and taking the opportunity to divest its fleet of older tonnage.