With the outbreak of the COVID-19 pandemic earlier this year, the cruise industry faces a historically difficult challenge. When several countries imposed lockdowns and closed borders, cruise companies joined airlines to ground their fleet as cancellations at alarming speeds. Carnival (NYSE: CCL), a leading player in the cruise industry with nine different cruise brands, was no exception. The company had to deal with a lot of cancellations and a lot of advance bookings, because people canceled their vacation plans to hunt at home instead.
Carnival’s recent report shows the financial damage caused by the coronavirus. For the second quarter of 2020, passenger ticket revenue fell by 86.3% year-on-year to just $ 446 million, while total revenue by a sharp 84.7% year-on-year fell to $ 740 million. The company reported a business loss of $ 4.2 billion for the quarter, although part of the loss can be attributed to goodwill and other impairments amounting to close to $ 2 billion.
Carnival’s share price has fallen 69% so far this year, although it nearly doubled from the low of around $ 8 in early April. Could the shares present great value to the smart investor?
Industrial break
It has been a long and painful wait for cruises to begin again as the pandemic continues to rage across the US and worldwide. Just last week, members of the Cruise Lines International Association (CLIA) announced the decision to voluntarily extend the break in U.S. cruise embarkations until October 31, 2020. This means that Carnival had to cancel all cruises scheduled to land in the country. to go in October.
To ensure that guests maintain confidence in the Carnival market and continue to make new bookings, the company had to offer guests the flexibility to request either an enhanced Future for Cruise Credit (FCC) or cash amount. An enhanced FCC can increase the value of an original booking or provide additional credits on board.
Although issuing an FCC helps customers retain and minimize contempt, it could incur very steep costs for the cruise line in the future.
Enough liquidity
The company has estimated that its monthly cash-burn rate for the second half of 2020 will be around $ 650 million, with the bulk consisting of ongoing shipping and administrative expenses, interest expenses and dedicated capital expenses. Fortunately, Carnival has managed to raise more than $ 10 billion through a series of financing transactions, and it also expects to continue to reduce its administrative expenses and new capital expenditures for the rest of the year.
The company also has $ 8.8 billion in dedicated export credit facilities available to continue financing ship deliveries through 2023. Carnival continues to actively manage its fleet, announcing last month plans for its second LNG Excel Class ship, confirmed for delivery of November 2022. And in June, it reported progress in building a new, 5,000-passenger mega cruise ship called the Mardi Gras. These new ships will be ready for guests if cruises are re-approved by the CLIA, reflecting the long-term management of fleet renewal management.
Several cruise markets are restarting operations
There has been some positive news this month, as some of Carnival’s cruise brands are teaming up to sail again in September. AIDA Cruises will resume operations from September 6, with the first ships departing from German ports. Costa Cruises plans to launch the same operations from Italian ports on the same day, following the approval by the Italian government on August 11 regarding the refund of cruises and new health protocols.
However, other brands, such as Holland American Line and P&O Cruises, are awaiting clearance to begin operations, with cruises canceled for the rest of this year.
A long and uncertain wait
Even though there are spots of good news amid the severe bad, it is not enough to convince investors that the worst is over. The pandemic situation does not seem to be improving, and even if a vaccine is found, the sector will not soon shift back to prepandemic levels.
Although Carnival’s brand remains strong and guests have made tournaments for bookings beginning in 2021, significant uncertainty revolves around the company’s cost structure and spending load post-pandemic. As it is now, it’s probably better to take a wait-and-see stand to see how things unfold.