Carnival Corporation is accelerating the disposal of older cruise ships from its fleet as the world’s largest cruise company works to manage its business and prepare to return to service in 2021 as a more efficient company. The news of additional planned ship sales came as the company provided a preliminary update on its financial health.
Carnival said that it now plans to reduce total capacity across its cruise lines by approximately 12 percent versus 2019 levels, adding three more cruise ships to the number of ships to be sold. This increases the disposals to a total of 18 cruise ships, up from the prior level of 15 ships, and an original announcement that 13 ships would be sold during 2020. Noting that all of the cruise ships that would be sold were older, less efficient vessels, Carnival highlighted that those ships had only produced three percent of the corporation’s operating income in 2019. Also being older ships, Carnival noted that their disposal would improve the corporation’s fuel efficiency.
While declining to name specific ships that were being added to the list of disposals, Carnival highlighted that all of them had previously been scheduled to depart the fleet as newer ships were introduced. So far, Carnival said it has delivered eight ships to their buyers. However, they cautioned that there could be no assurances that there would be a viable buyer for the additional ships. In the third quarter of 2020, Carnival is reporting a $937 million non-cash loss on ship sales and impairment charges related to ship sales.
Since announcing its intention to rationalize the cruise ship fleet, Carnival has confirmed the sale of four cruise ships from Holland America Line, two from Costa Cruises, two from Carnival Cruise Line, and one from P&O. In addition, two more ships from Costa Cruises were already sold and due to be delivered to a new Chinese joint venture, and two ships were sold from P&O Australia and due for delivery in 2021 to Cruise and Maritime Voyages. CMV, however, went into administration during the summer.
The news of the plans to sell additional cruise ships came as a third Carnival Cruise Line ship arrived in Turkey. The Carnival Imagination is currently anchored off-shore near the same ship breaking yard that recently took delivery of two of her sister ships, the Carnival Fantasy and Carnival Inspiration. Carnival Cruise Line announced that the first two ships were being recycled. The two ships that had been slated for delivery to CMV plus Princess Cruises’ smallest ship were all recently repositioned from the Far East to Cyprus leading to speculation about their fate. In addition, a rumor emerged in Hong Kong today that the Japanese NGO Peace Boat might be acquiring a cruise ship from Carnival Corporation.
Beyond the efforts to dispose of older cruise ships, Carnival also said that it was expecting delays in new cruise ship deliveries. It currently plans to take delivery on only two cruise ships between now and the end of November 2020, down from four due this year. P&O's Iona has been completed in Germany and awaiting acceptance from Meyer Werft while Fincantieri is nearly completion of both the Princess Cruises' Emerald Princess and Costa's Costa Firenze. Also, they expect delivery on only three additional new ships in fiscal 2021, versus a total of nine ships that had been scheduled over the two years. Carnival has a total of 16 cruise ships on order due for delivery through 2025.
The news of the efforts to increase the efficiency of the fleet and slow deliveries of new ships came as Carnival reported a nearly $3 billion loss in the third quarter including the nearly $1 billion in impairment charges. As of the end of August, Carnival reported that it has $8.2 billion in cash with an average monthly cash burn rate of $770 million in the third quarter. They expect to lower the cash burn rate to $530 million in the fourth quarter.
The corporation also provided an update on its bookings. Saying that the first half of 2021 bookings reflect the expectations of the phased resumption of service and anticipated itinerary changes, they however noted that bookings for the second half of 2021 were at the higher end of the historical range and similar to where bookings were in 2018 for the second half of 2019. They also noted that just over half of all the bookings in the third quarter were new reservations as opposed to people rebooking from canceled cruises. They noted that they believe this indicates the long-term potential for cruising.