With losses of $770 million per month in the last quarter, or roughly $287 every second, Carnival Corporation is looking to cut expenses during the pandemic. That means an unprecedented 18 ships are leaving the company’s fleet.
The Miami-headquartered cruise company, home to nine cruise lines, is responsible for 45 percent of the global cruise industry. The company, which launched the cruise industry with its Carnival Cruise Line in the 1970s, announced earlier this year it would offloading a dozen older ships, then it added another three to the list, and now three more.
According to SEC filings
, the 18 ships represent 12 percent of the pre-pause capacity but just three percent of the operating income last year. While some European based cruises have resumed, the majority of Carnival Corp’s fleet is still unable to welcome guests any time soon.
Seventeen of the eighteen ships have been identified
. Carnival Cruise Line, Costa Crociere, and Holland America will each see four ships retired. P&O Australia and Princess will each see the loss of two vessels while P&O will see one leave.
Of the seventeen identified ships, the average age of the boats is 25 years old, with the newest being the Costa Mediterranea, built in 2003. Two of the ships are headed to China, where they’ll be used by Carnival’s new Chinese joint venture
with the China State Shipbuilding Corporation.
One of the Princess ships, the Sun Princess
, was at one time the world’s largest cruise ship and was the first foreign-flagged cruise ship to offer cruises designed specifically for the Japanese. Some of the ships were previously set to be handed off to another cruise line, Cruise & Maritime Voyages, which has filed for bankruptcy. All five of Cruise & Maritime Voyages’ ships will go up for auction
next month. Nearly half a dozen cruise lines, albeit all smaller lines, have shut down
or filed for bankruptcy since the pandemic forced pauses began earlier this year. Of the five, Cruise & Maritime Voyages has been the largest.
The closures of the smaller cruise lines have meant the typical pipeline larger cruise lines use to offload their older ships has now been dramatically affected, which may force them to scrap more ships instead of selling them to smaller lines. Four of the vessels Carnival plans to offload, all Carnival Cruise Line ships and one other Costa ones, are headed to scrap yards
. Three other ships, including two that were to be bought by Cruise & Maritime Voyages, are now anchored in Cyprus, causing speculation
that these ships would also be scrapped.
Image via Port Canaveral
Carnival new $163 million Terminal 3 at Port Canaveral
Carnival does have several ships in the pipeline set to join its fleet in the coming years. The company had ordered sixteen new ships but now only five are to be delivered by the end of the 2021 fiscal year, down from nine that had been previously scheduled. It has been confirmed that delivery on some of the ships has been delayed, including the Mardi Gras, slated for Port Canaveral
. Multiple deliveries have been slowed
Carnival Corporation & plc President and Chief Executive Officer Arnold Donald noted
that the retiring of the 18 ships would have “a structurally lower cost base, while retaining the most cash generative assets in our portfolio.”
Photo via Carnival
The Carnival Mardi Gras
More stringent environmental regulations and changes guest demands likely played a part in the accelerated retiring of the 18 ships. Increasing demand
for balcony rooms meant that many of the older vessels, many of which have few private balconies, bring in lower per-suite rates. The demand for private spaces, especially outdoor ones, is expected
to only grow thanks to COVID related concerns that may far outlast the pandemic itself. Also, many ports now demand exhaust gas cleaning and wastewater treatment systems, which can be expensive to retrofit onto older ships.
The encouraging headway towards a full reopening is slowing happening, Carnival acknowledged it is “unable to predict when the entire fleet will return to normal operations” and that the continued pause is having a “material negative impact on all aspects of the company's business.”
While the company is currently hemorrhaging more than three-quarters of billion dollars per month, in the SEC filing, chief financial officer and chief accounting officer David Bernstein is optimistic that the company will slow the burn and return to profitability sooner than later.
"We have over $8 billion of available cash and additional financing alternatives to opportunistically further improve our liquidity profile. We have recently begun to optimize our capital structure with the early extinguishment of debt on favorable economic terms and the extension of debt maturities" Bernstein said. "Once we fully resume guest cruise operations, we expect our cash flow potential will build a path to further strengthen our balance sheet and return us to an investment grade credit rating over time.”
Image via Carnival Corporation
PortMiami's updated Carnival Cruise Line Terminal F
A round of layoffs on September 20 also saw Carnival Cruise Line, Carnival Corp's largest cruise line, let go as many as 7,000 employees, roughly 20 percent of its ship employees, including multiple high ranking employees. Cruise Law News
is reporting the layoffs include "as many as eight captains (masters), five staff captains, five guest service managers, six executive chefs and six hotel directors."
According to Crew Strong, a Twitter account that tracks crew member news, Princess and Holland America are also expected to layoff multiple crew members in the coming days.
Looking forward, CEO Donald also remains confident. “With two thirds of our guests repeat cruisers each year, we believe the reduction in capacity leaves us well positioned to take advantage of the proven resiliency of, and the pent up demand for cruise travel - as evidenced by our being at the higher end of historical booking curves for the second half of 2021. We will emerge with a more efficient fleet, with a stretched out newbuild order book and having paused new ship orders, leaving us with no deliveries in 2024 and only one delivery in 2025, allowing us to pay down debt and create increasing value for our shareholders.”
Despite the promising improvements the past few weeks, for now, it’s still too early to tell if the company, or the industry as a whole
, will even be around come 2025.