Carnival Corp. (CCL) Q2 2020 Earnings Call Transcript

Carnival Corporation (CCL) Q2 2020 earnings call dated July 10, 2020

Corporate Participants:

Arnold W. Donald — President and Chief Executive Officer

David Bernstein — Chief Financial Office and Chief Accounting Officer

Analysts:

Steve Wieczynski — Stifel — Analyst

Robin Farley — UBS — Analyst

Jaime Katz — Morningstar — Analyst

Tim Conder — Wells Fargo — Analyst

Jamie Rollo — Morgan Stanley — Analyst

Brandt Montour — JPMorgan — Analyst

Patrick Scholes — SunTrust — Analyst

Felicia Hendrix — Barclays — Analyst

Presentation:

Arnold W. Donald — President and Chief Executive Officer

Good morning everyone and welcome to our business update conference call. I’m Arnold Donald, President and CEO of Carnival Corporation & Plc. Today, I’m joined telephonically by our Chairman, Micky Arison; as well as David Bernstein, our Chief Financial Officer; and Beth Roberts, Senior Vice President, Investor Relations. Thank you all for joining us this morning.

Now, before I begin, please note that some of our remarks on this call will be forward-looking. Therefore, I must refer you to the cautionary statement in today’s press release. It is hard to believe that it has been just 120 days since we voluntarily paused operations across our global fleet. In that relatively short time, we’ve returned over 260,000 guests home. We’ve already repatriated 77,000 crew members, and we’ll repatriate over 80,000 in total, hopefully before the month is over.

We process billions of dollars, euros and sterling of guest refunds and billions of future cruise credits and those currencies as well. We moved 53 ships in the full pass status and with the remainder expected to be in a similar position within the next month. We’ve reached agreements for the disposition of nine vessels, while negotiating the delay in delivery of 16 ships on order.

We secured over $10 billion in new capital, while working to extend debt maturity and secure covenant waivers with over 20 lenders and over 40 different agreements. We’ve engaged with medical experts and scientists around the world to inform our development of return to cruise protocol. And we are now preparing for the imminent return of cruising in Germany. So we’ve come full circle from entering a voluntary pause of planning of staggered resumption.

Now, I couldn’t be more proud of how collectively our team has handled this. We looked at our guests, we looked after each other, and the more than 700 places we go each year. We’ve honored what we stand for as a company, and we are well positioned for our existing shareholders to still experience attractive returns over time. We will emerge a leaner, more efficient company. So thanks — thanks to our crew for continuing to exceed expectations through challenging circumstances, while taking care of each other, taking care of our ships and protecting the environment. Thanks to our shoreside team members for working 24/7 to repatriate first our guests, then our crew, all while heavily incredible unprecedented huge volumes of calls and inquiries from guests, ports, vendors, travel professionals and other partners, and while coordinating with the myriad of government authorities and agencies globally, all in the context of a constantly changing and evolving situation. Thanks to our travel partners for their support and thanks to our guests for the countless number of heartfelt outreaches, expressing support and concern to our crew, our shoreside personnel and the brands they love. Thanks to those investors who have expressed their confidence by staying with us, and thanks to those who have expressed their confidence by becoming new investors.

Look, these are truly unprecedented times for our industry. They are clearly trying times for all of travel and tourism, and they are extremely challenging times for the world at large. I extend my personal deepest sympathy to those around the globe who have suffered directly themselves individually or whose loved ones have suffered with the buyer. For our company, it has been not only challenging but frankly, at times, it has been painful. We are aware that so many people depend on us for their livelihood and well-being, not only our own employees, but those and many other businesses around the world, both small and large. And we’ve been on a journey since COVID began to manifest, a journey we’ve aggressively managed throughout. Our highest responsibility, and therefore our top priorities are always compliance, environmental protection and the health, safety and well-being of our guests, the communities we touch and our Carnival family, our team members shipboard and shoreside.

We initiated a voluntary pause in operations in the early days of this global pandemic, including being the first, the half sailings here in the US, and action that was taken before shelter-in-place was implemented in the US and before the CDC no-sail order was issued. We’d recently extended our pause in the US through late September, which, of course, is well beyond the time frame of the current CDC no-sail order, expiring July 24. Again, our team worked tirelessly to return over 260,000 guests safely home, and then they focused on repatriating our more than 80,000 shipboard team members to their homes in over 130 different countries. This was a daunting task given the limited availability of air, the real barrier of closed borders and a fluid, constantly changing context that may planning and even execution extremely challenging.

In the end, we got the job done through chartering planes, and in many cases using our own vessels to transport our teams safely home. So far we sailed 50 ships, that’s nearly half our fleet and over 400,000 nautical miles in this repatriation process. We also quickly focused on securing sufficient capital to provide a financial runway to withstand an extended pause. That effort included cash preservation, motivating our guests around deposit retention and the wind down of our fleet.

Now, David and our finance team with support from our legal team work non-stop to secure funding to sustain our path forward in a prolonged pause. We were able to access the capital markets in the early days and in a meaningful way initially raising $6.6 billion of capital. And doing so at a time, when the capital markets were still close to many. And while it was certainly financially painful for a company that it always manage to an investment-grade credit rating, bearing the cost of the initial raise was prudent to ensure our long-term viability.

Now, because of our strong balance sheet, we were able to raise the majority of that $6.6 billion of capital, along with an additional $2.8 billion on a secured basis, minimizing dilution. Historically, as you know, we’ve managed a strong balance sheet and an investment grade credit rating. In the current environment, our national brands have been an additional advantage, supplementing our access to liquidity across a number of countries at attractive rates.

Our success in maintaining a strong balance sheet and the strength of the national brands has been a differentiator, providing a softer landing for our company and our shareholders. In fact, our overall blended interest rate is just 5%, despite the recent expansion of debt, and we still retain meaningful flexibility going forward to manage further uncertainty.

Importantly, we have capacity to issue additional debt. Beyond that, we are also evaluating potentially to monetize non-core assets to provide additional liquidity or potentially reduce our debt burden over time. We are confident that we are prepared for a wide range of scenarios for the next 12 months.

Additional cash conservation efforts, combined with future liquidity measures, will enable us to sustain ourselves beyond 12 months into late next year, even in a zero-revenue scenario. Concerning cash conservation, our workforce reductions, while painful, were necessary to make it through to the other side of the impact of this global pandemic.

In the face of no meaningful revenue, we were able to forestall the financial impact on our employees, deferring employee actions beyond the time-frame of many others during that period without compromising the interest of our shareholders, honoring our fiscal responsibilities.

We also, of course, significantly reduced non-essential capital expenditures in excess of $2 billion and significantly reduced marketing costs as well. And while we continue to expect new ships to provide greater cash generation and higher returns over time, once we return to sailing, we have also worked to differ new build capex given the near-term environment. In fact, we expect to reduce ship deliveries through the end of fiscal 2021 from nine as originally planned down to five; two this fiscal year and three next, deferring over $3 billion of capital expenditures into fiscal 2022 and beyond. So reduced our cash burn and have a more efficient fleet once we do resumed cruising, we have aggressively shared less efficient ships. A total of 13 ships are expected to leave the fleet, representing a nearly 9% reduction in our current capacity.

We are also reorganizing the company to emerge stronger, leaner and more efficient. Even when we return to full-scale operations, we don’t expect to return to the same staffing requirements as we are addressing our work-streams to work in a more efficient manner. At the same time, we are focused on developing new and enhanced protocols. Now we’ve dealt with many types of viruses in the past.

Historically, we’ve had effective protocols in place onboard our ships, including screening measures, medical centers and sanitation procedures which prevent and reduce the spread once brought on board from land.

During this pandemic, we had less than our market share of incidents, again, we had less than our market share of incidents. However, as this often the case being the largest in the industry, we had a disproportionate amount of video attention.

Now, having said that, as evidenced by the global shutdown, this virus is unique and the world is discovering together how to most effectively address this.

We’re working diligently to determine what enhancements to our existing protocols will best serve the interests of public health. Now our protocols are being informed by global earnings. And to that end, we are engaged with external advisors, which include world-renowned epidemiologists and other medical experts and scientists utilizing their collective inputs. Once people are gathering again which just a clearly happening on a country-by-country basis, society will determine the risk it is willing to accept going forward. And we’re working so that our guests will not incur any greater risk versus engaging similar experiences on land. And of course, we’re working to achieve less risk and exposure to similar shoreside activities as we have often achieved in the past with prior health risks such as, for example, norovirus.

But to be clear, we will sail when we feel we will honor our commitment to operate in the best interest of public health. In that regard, we’re in active discussions around the world with appropriate authorities and agencies. In addition to Germany, Italy seems to be closest to resuming cruises at this time. And we’re in very active dialog with them, as well as other, is there any procedures based on the best available science to specifically address the risks associated with COVID-19.

Upon resuming service, we are well positioned to optimize the latent pent-up demand by our leading brands around the world. Having national brands as a portion of our portfolio at this moment, as I’ve already mentioned, is clearly an asset.

As nations reintroduce social gathering, including cruise, they are most likely initially to restrict reactivation to their own residents exclusively. With brands like AIDA, that is roughly 95% German source; P&O UK, which is 98% British source; Costa Europe, which is nearly 80% kind of European source; P&O Australia, which is more than in the 99% Australian and New Zealand source; and Carnival Cruise Line, which is 92% US source, we are very well positioned.

Additionally, the fact that these brands are characterized by ready access would drive to markets any prevalence of shorter duration cruises strengthened the possibility for success in today’s environment.

Clearly cruise will not come back all at once. As we are demonstrating with AIDA, we intend to resume operations with a small percentage of the fleet, which inherently will make us less reliant on new to cruise in the early days. Now, with nearly two-thirds of our guests globally, that’s almost 8 million guests, each year repeat cruises, an active database of nearly 40 million and frequency to repeat amongst cruises every two plus years on average, we expect demand to be more than adequate to fill shifts in a staggered restart. Again, we expect demand to be more than adequate the field ships in a staggered restart.

Our overriding financial objective going forward is to maximize cash generation, at the same time, we’re focused on staggering the reintroduction of capacity, which will help to manage yields. Now this is even more relevant since historically we’ve had only two levers to pull in the down cycle; occupancy and rate. In this environment, we will have a third capacity. Capacity will be the third real-time demand lever we can leverage to produce the best short- and long-term outcomes.

Our long-term prospects are especially bright, given we’ve moderated our overall capacity. We share less efficient vessels and lowered our overall cost base. We’ve reduced near-term capacity, and going forward we introduce newer, far more efficient vessels over time in line with demand generation. Based on the actions we’ve taken to date, our fleet will not return to 2020 second quarter capacity level until 2022, at the earliest, and we’ll be inherently more efficient with a roughly 10% larger average bird size and reduced average age.

In summary, we have appropriately brought down our operating costs by over $7 billion on an annualized basis, and we’ve reduced capital expenditures by more than $5 billion over the next 18 months. We’ve transitioned the fleet into a prolonged pause and we right-sized our shoreside operations and we’ll continue to do so. We are aggressively shedding assets, while actively deferring new ship deliveries. We have secured over $10 billion of additional liquidity to withstand another full year in a zero-revenue scenario.

We are working aggressively on protocols, with Germany set to resume cruising. We will emerge a leaner, more efficient company to optimize cash generation, pay down debt and position us to return to a strong investment-grade credit rating over time.

We’re working hard to resume guest operations and we are working hard to ensure when we do resume guest operations, we do so in a way that serves the best interest of public health. In time, we expect to continue to deliver extraordinary vacation experiences to our guests and over time, strong returns to our shareholders.

With that, I will turn the call over to David.

David Bernstein — Chief Financial Office and Chief Accounting Officer

Thank you, Arnold. As Arnold said, it is hard to believe it has been just 120 days since we pause our guest cruise operations across the globe. We quickly recognized the situation and took swift action to protect our company and all of its stakeholders.

Our financial action plan has had two main tasks; cash preservation by reducing our monthly cash burn rate and improving our overall liquidity position. I’ll start today with an update on our full-year 2021 booking trends, then I’ll provide a summary of our reduced monthly average cash burn rate for the second half of 2020, and finish up with some insights into our improved liquidity position.

Turning to our 2021 booking trends. At this point in time our cumulative advance bookings for the full year 2021 remain within historical ranges at prices that are down in the low to mid-single-digit range, including the negative yield impact of the FCCs and onboard credits applied. Our book position is encouraging given that we have essentially suspended all advertising and promotional activity.

It is particularly reassuring to see that approximately 45% of the 2021 book positions our guests that are new to brand with the remaining 55% of guests being brand loyalists, which is just a little higher than the norm. And it’s also promising to see that 55% of the 2021 booking volumes during the last two months were new bookings with the remainder being FCC’s re-bookings.

Now, let’s look at our monthly average cash burn rate. During the pause in our guests operations, our monthly average cash burn rate for the second half of 2020 is estimated to be $650 million per month. If the pause and guest operations were to continue into 2021, we believe that there were opportunities to further lower the monthly rate.

Our monthly cash burn rate includes four items. First, $250 million per month of ongoing ship operating and administrative expenses. This monthly estimate is much lower than the second quarter actuals, which included returning guests to their homes and a significant portion of the cost of shipboard team member repatriation.

In addition, the second half monthly estimates benefits from the fact that we expect substantially all of our ships to reach their full pause status during the third quarter. Furthermore, the second half will be lower than the second quarter because of the combination of layoffs, furloughs, reduced work weeks and salary reductions generally implemented late in the second quarter or early in the third quarter, across the company.

Finally, the monthly estimate will be further reduced as additional ships leave our fleet. Second, interest expense is expected to be approximately $85 million per month.

Third, capital expenditures are forecasted to be approximately $115 million per month, net of export credit financings. And this includes an expectation of two ship deliveries and the receipt of other capital commitments contracted for prior to the pause in our guest operations.

The fourth and final component is an unusually high item due to the timing of guest refund payments flowing through accounts payable. It is expected to be approximately $200 million per month. In fact, the increase in accounts payable has already completely reversed itself in the month of June.

At this point, I would like to apologize to those guests who had to wait for their refund. We had to address several hurdles to normal business operations, which included an unprecedented number of guests impacted by canceled voyages, a ship to work-at-home for call center employees, a need to reprogram system to handle the volume, and a need to develop new procedures to ensure accurate processing for our guests.

We have worked very hard at all of our brands around the globe to expedite our refund processing, and with limited exceptions we are back to pre-COVID service level.

Now, I’ll provide some insights on our overall liquidity position. Our available liquidity at the end of the second quarter was $7.6 billion, which includes $6.9 billion of cash and $700 million from the government commercial paper program we qualified for in the U.K.

We added to that our liquidity position by completing the offering of a first priority senior secured term loan on June 30th, with net proceeds of approximately $2.6 billion. Looking ahead, our European brands will continue to work on government-backed financing in both Germany and Italy that we hope to complete over the coming months.

Looking beyond that, we will continue to work on extending 2021 maturities. In addition, over time, we will opportunistically look to further enhance our liquidity position. In recent weeks, our liquidity focus has begun to change. Back in March and April, our thought process was to obtain enough liquidity to sustain the company during the pause in our guest operations and get to the other side.

Now that AIDA has announced the resumption of guest cruise operations, we are looking at a variety of financial models where we resume guest operations in a phased manner with specific brands and ships returning to service over time to provide our guests with enjoyable vacation experiences and our company with positive cash flow and additional liquidity.

So, with plenty of available liquidity in hand to withstand the impact of no sailings or no revenues well into 2021, our focus has now shifted to projecting the additional liquidity that the resumption of our guest operations will provide.

And now, I’ll turn the call back over to Arnold.

Arnold W. Donald — President and Chief Executive Officer

Thank you, David. Operator, please open the line now for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] One moment please for the first question. Our first question comes from Steve Wieczynski with Stifel. Please proceed.

Steve Wieczynski — Stifel — Analyst

Yes, hey guys. Good morning. So, I guess a bigger picture question here. I guess, if we look at a couple of years down the road, whenever the business gets back to a so-called normal operating level, how do you think about the free cash flow potential of the business moving forward, given the ongoing capex needs plus a much higher debt levels you guys will be carrying moving forward?

And can you help us think about the excess free cash flow potential of the business and what it looks like down the road, and maybe the path to get back to investment grade?

Arnold W. Donald — President and Chief Executive Officer

Good morning, Steve, and thanks for your question. What I’m going to do is kind of play quarterback as we’re all in different locations, even though we’re all on the phone together. And I’ll just refer the questions as they come up. So David, you might want to go ahead and address the cash flow.

David Bernstein — Chief Financial Office and Chief Accounting Officer

Sure. Good morning, Steve. So, Steve, our business has tremendous cash flow generation potential as you know. I mean, in 2019, we generated $5.5 billion of cash flow. And one of the things that Arnold mentioned was the fact that we were — had some ship deliveries delayed. And so over time, when you start looking at the next few years, our ship deliveries have been evened out here docked — we docked two this year, three next year, three the year after.

And so, with two to three ships delivery per year, and by the way, when I’m doing this, I’m thinking about the fact that there are a couple of ships delivered in the last few weeks of the year. And I’m sort of counting in next year’s delivery. So with two to three ships a year over time and significant cash flow generation, we do — we should have excess cash flow that can go to pay down the debt. And it may take a number of years, but, as Arnold said, our target is to get back to investment-grade credit rating.

Steve Wieczynski — Stifel — Analyst

Okay. Got you. And then, second question would be around the booking patterns for next year. And I don’t know if you can do this, but maybe if you could break those bookings down a little bit, and I guess what I’m trying to get here is our people booking across all brands.

Any insight there, I think could be pretty helpful. And obviously some of your brands encountered significant negative press earlier in the year, just, for example like Princess. I’m just trying to figure out is if a brand like that is getting, is booked as well as the rest of your fleet, and hopefully that makes sense.

Arnold W. Donald — President and Chief Executive Officer

Well, I’ll start and then I’ll let David give more detail on the booking. First of all, we’re very encouraged by the booking patterns we see right now. I mean very encouraged. We have not only, obviously, a number of future cruise credits where people had their itineraries canceled, but they chose sort of a cash refund, book with us again. But we have substantial new bookings, and we even have new to cruise bookings, which given the current state of the environment in the world is really a good testament to how strong a vacation experience and value cruising really is.

And then even with AIDA, we had one day so far as we prepare for an August resumption. And the bookings in that one day, we are over 1,000 bookings taken up a significant portion of the first sailing on a very short notice period.

So, there is a lot of pent-up demand. You referenced Princess, and particularly, Princess, actually at this point in time, is trending with all the other brands in the industry, and not disproportionately, so in terms of consumer preference attitude. And none of the brands in the industry have reached the trough that was reached back in 2012, 2013 when there was a plethora of incidents that made the media with the industry number which what related to voyages and some of our brands. And so none of the brands in the industry, none of ours or others, have gone to the low levels that we experienced at that time.

So, the trough in this period has been higher than the trough in that period. So, there’s a lot of pent-up demand, a lot of latent demand. That doesn’t mean that we don’t have work to do. Once we start cruising with much larger volumes of capacity to attract new to cruise, of course, we’re going to have work to do.

But, right now, the brands are strong, the bookings are encouraging. And with the staggered start we’re going to have to resumption of cruising, there should be plenty of pent-up latent demand with previous cruise scores to fill the ships. But, David, you might want to add a little additional color.

David Bernstein — Chief Financial Office and Chief Accounting Officer

Yes, the only additional color, when looking across the brands, which you were trying to get, the only things that I would comment on is that probably — AIDA and Costa Europe are probably a little bit ahead of some of the other brands on a relative basis, but that’s probably has a lot to do with the current situation in Europe, and the potential resumption of cruising, I mean, we’ve already announced it in Germany. And as Arnold had mentioned, we are close in Italy.

The only other brand I’ll call out is maybe Costa Asia. And that’s — because of the last minute booking trends, it’s a very close short in booking cycle in China. That typically is in the last few weeks. So, they — once we resume cruising in China, I’m sure we’ll see those bookings, but Europe is ahead and China is probably a little bit behind. Everybody else is in a similar book position.

Steve Wieczynski — Stifel — Analyst

Okay, great. Thanks guys. That’s great color. I appreciate it. Best of luck.

Arnold W. Donald — President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Robin Farley with UBS. Please proceed.

Robin Farley — UBS — Analyst

Great, thank you. You commented that 21 bookings are in line with historical percentages and you used the phrase of capacity that’s available for sale. So I just wanted to clarify, is that everything except those ships that are going to be sold? Or is there — are you holding back capacity for sale? So just trying to think about that percent booked for next year.

Arnold W. Donald — President and Chief Executive Officer

Yes, go ahead, David.

David Bernstein — Chief Financial Office and Chief Accounting Officer

Yes. So, it wasn’t the exception of the ships being sold because those, in most cases, haven’t been announced yet, except for two. And so that will occur very shortly. But the currently available for sale just referred to a few cruises that we had because of itinerary changes.

I’ll give you a great example. The Majestic Princess, given its itinerary change, it wasn’t currently available for sale in the system. And you probably saw the recent announcement where Majestic Princess would be going to Alaska.

So, there’s a few nuances. So of course the lawyers had us put that in to make sure everybody completely understood, but it’s really just a nuance.

Robin Farley — UBS — Analyst

So, you’re talking about 90 plus ships are included in that what’s available.

David Bernstein — Chief Financial Office and Chief Accounting Officer

Oh, yes.

Robin Farley — UBS — Analyst

Okay. That’s I —

David Bernstein — Chief Financial Office and Chief Accounting Officer

It’s a small amount.

Robin Farley — UBS — Analyst

I wasn’t sure if that was some very limited amount or not. That’s helpful.

David Bernstein — Chief Financial Office and Chief Accounting Officer

No. No.

Robin Farley — UBS — Analyst

And then my other question is, Arnold, I know you talked a lot in the beginning about discussions with various countries. The EU has already put out some very clear guidelines and suggestions. Are your discussions with the CDC along similar lines to what the EU is suggesting? Or are you seeing a big difference there?

Arnold W. Donald — President and Chief Executive Officer

At this point, the conversations with the CDC evolved in around the current pause and the handling of the ships during the pause which has exclusively crew onboard the ships. We have not actually gotten to the point of serious resumption of cruise discussions with the CDC but, of course, that’s coming.

So, in terms of the EU, while there is a EU kind of general thing that’s out there. Each nation is going to do what if things that needs to do. And so there you have to go country-by-country as well. And that’s why — and in our case, we not only had to do in Germany, the German authorities, but because the ships — some of the ships were like — with Italy — we have to deal with Italy even for the German situation. And so that’s just the nature of the business.

So, we’ll have to deal and are dealing with various authorities everywhere. And even with the CDC, you have individual communities and individual ports, and the way this is going to work is court cities and destination cities, all have to be aligned, that’s number one.

Number two, they will be informed by or influenced by CDC and other relevant authorities dependent where those destination cities are around the world and so on. And then it’s going to be informed by our own degree of confidence that we’re acting in the best interests of public health. And that’s why we’ve engaged plethora of medical experts and scientists around the world that informed us we’re about to do with AIDA, for example, which we feel very good about the protocols there and involve them works out again with the ports there and overall governing authorities in Germany, and that’s the process.

So, it’s a very involved process. A lot of detail, a lot of different constituencies, but yes, we are in conversations with the CDC as the entire industry. The industry has in conversations with each other because no one wants to compete on health or safety or environment or anything like that. And we’re all working collectively. And I think the most important thing, Robin, is the first determinant is society’s willingness to gather so as social gathering. And so what you’re seeing, for example, in Germany, where there community spread has become relatively low on an incident level basis, society is willing to socially gather, and that lays the foundation for us to be able to do things.

And there is more information about the virus, better understanding of what to do or what not to do. And, so all of that together makes it possible, but with confidence begin to sail again. And we’re not quite at that point, obviously, here in the US where there still surges in different portions of the country in terms of incidents and so on. But we’re working on it along with the rest of the industry.

Robin Farley — UBS — Analyst

Great. Thank you very much for that thorough answer. I wonder if I could squeeze in just one tiny clarification with David.

David Bernstein — Chief Financial Office and Chief Accounting Officer

Sure, Robin.

Robin Farley — UBS — Analyst

David you — in your remarks, you used an expression like I think about accounts payable reversing itself. I guess I just want to clarify, are you saying then that — as of now or over the course of June into now that you are now bringing in more new deposits than what you are refunding in the last month what that referred to?

David Bernstein — Chief Financial Office and Chief Accounting Officer

No. That’s not exactly what that referred to. But I will answer the second part of what your question is fair. So what I was referring to is once we process the customer deposits — and I’ll give you a high-level answer.

So, customer deposits went down roughly $2 billion in the second quarter, but all the cash didn’t go out the door. We actually paid about $1 billion. And the other $1 billion wound up at the end of the quarter in AP because it’s no longer a customer deposit, and then we were able to process that $1 billion in the month of June, so, AP came down.

But to answer your question relative to customer deposits, I think we had said in an 8-K we filed about a month ago that we did expect to see a decline in customer deposits during the third quarter, but that it was — what actually we said the back half of the year, but we expected it all to occur in the third quarter.

And that the decline in the third quarter would be significantly less than the decline in the second quarter. So probably, by the time we get to the end of the third quarter, we should be in a balanced position. Exactly what day or the week or month that occurs is somewhat dependent a little bit on the timing of extending the pause if that — if and when that occurs as we move forward.

Robin Farley — UBS — Analyst

Perfect. Thank you very much. Thanks.

Arnold W. Donald — President and Chief Executive Officer

Thank you, Robin.

Operator

Our next question comes from Jaime Katz with Morningstar. Please proceed.

Jaime Katz — Morningstar — Analyst

Hi, good morning. I have a question on the AIDA launch. It looks like in the yesterday’s press release, the original launch of the cruises will have an adjusted passenger capacity. And some of your competitors were quoted in The Financial Times yesterday saying that constrained capacity would really put a crimp on profitability.

So, I’m curious what that restrained capacity looks like kicking off. And how you’re thinking about that across the fleet?

Arnold W. Donald — President and Chief Executive Officer

Yes, so, first of all, the important aspect of this to focus on is proper social distancing within what the particular country, society has determined at this point in time for them is what they are comfortable with, and then the social distancing that occurs in the public venues on the ship. If you’re in your cabin, you’re naturally socially distanced from the other cabins. So as we — actually the public venues, the restaurants, that theaters et cetera. And there’s also a lot of outdoor spaces on our ships, which again requires slightly different understanding of social distancing than in close places like certain restaurants. So that’s the context of the framework to begin with.

Given that, we’re looking at different ways to manage the flow, which we do all the time on the ships, to ensure that we don’t have congregations that would compromise the social distancing requirements at the time. And it’s — there have been requirements — it’s just more preferences.

Right now, its 1.5 meters in Germany, for example, okay. And so that can then drive depending how you plan to manage the flow in the ship. That can drive what you ultimately might do with occupancy along with the fact that you want to reserve an area on the ship, any event, anyone has COVID or there are cases of COVID that you can isolate those individuals in a comfortable situation so that you can mitigate any possible spread on the ship.

So that — those are the dynamics involve. So then a straight answer to your question is, we’re going to start slow, of course, because we’re starting out. We have to — our people have to be trained. We have to see how people’s behaviors really are. We’ve got lots of ways to set up the social distancing and so on. So we’re going to start with lower occupancy. But then, we’ll ramp up to higher occupancy as long as what we’re doing is proven to be working.

And so, that’s kind of the flow. In terms of profitability, we can be less than 50% occupancy, and still generate significant positive cash flow. Initially, we’ll probably start at less than 50% occupancy as we work out the details, see whether choke points are and so on and so forth and get experience with it. But then, we’ll ramp up above that level of occupancy, hopefully, in a relatively short period of time. We’ll have to see how it goes. But even at less than 50% occupancy, we can generate on the ships that are either put into service right now substantial positive cash flow.

Jaime Katz — Morningstar — Analyst

And then — go ahead.

David Bernstein — Chief Financial Office and Chief Accounting Officer

I was just going to add a little bit too.

Arnold W. Donald — President and Chief Executive Officer

Yes. Go ahead David.

David Bernstein — Chief Financial Office and Chief Accounting Officer

Just kind of frame the overall picture. Generally speaking, the breakeven point in terms of occupancy for cash flow generation at the ship level is probably somewhere in the 30% to 50% range, depending on the size of the ship.

So, as Arnold said, if we start a little below 50 as we work our way up, those initial ships are probably at the lower end of that scale, and we will be generating positive cash flow. But I want to try to give you a little bit of an example of the power of the cash flow generation of our business. And — but I don’t have a forecast for 2020, and I can’t provide you guidance. Let me try to use the 2019 actuals to kind of help you understand what’s the situation we’re in?

So, if I look at the 2019 actuals, and I say how many ships would we have had to operate to have a cash flow breakeven? The number is about 15 ships. The top-15 ships probably generate about 30%, 31% of our cash flow. And of course, I guess, if I have to account for the fact that we have ships — the rest of the ships would be in pause status maybe have got to operate 25 of the ships and our fleet to generate a little over 40% of our cash flow in order to cover the pause cause costs for the rest in the fleet, and all of our shoreside SG&A.

And we would still be cash flow breakeven. And by the way, if we were only operating 25 ships, I don’t think we’d be spending as much as we did in 2019 on SG&A. And when I did these calculations, I just assume the 2019 SG&A was flat. So it gives you a bit of context of the power of cash flow generation in our business.

Arnold W. Donald — President and Chief Executive Officer

Thank you, David.

Jaime Katz — Morningstar — Analyst

That’s really helpful. That’s really helpful. I think the other thing that might get you back to that is that Asia seems to be recovering a lot faster. And I believe Genting is going to start sailing at the end of the month. And so is there any timeline that you guys have sort of outlined to get back into the regions that you’d be willing to share? Thanks.

Arnold W. Donald — President and Chief Executive Officer

You bet. We never try to predict regulatory because you can’t. And so, obviously, we are working closely, especially with our JV partners in China to see when we can start a sailing again. But at this point, we don’t have a date certain or even probable for that. But like you said, this virus moved from East to West. And so, like you were cautiously optimistic that we will and do time here be in a position to reintroduce cruising in the Asian market as well.

Robin Farley — UBS — Analyst

Thank you.

Arnold W. Donald — President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Tim Conder with Wells Fargo. Please proceed.

Tim Conder — Wells Fargo — Analyst

Gentlemen, thank you for the color. Very helpful. Wanted to continue, David, on your example that you just went through. Bench-marking off of ’19, given the ships that you’re divesting and given, you said there will be — or Arnold, you all referred to that there’ll be cost obviously that will not come back into the equation shoreside and so forth. What would be a rough guesstimate at this point where your cost per ALBD ex-fuel should be relative to ’19? Just any color you could give us there?

Arnold W. Donald — President and Chief Executive Officer

Go ahead, David.

David Bernstein — Chief Financial Office and Chief Accounting Officer

Yes, Tim, that’s really very difficult at this point. Keep in mind, as Arnold and I both said, it’s been a 120 days, and that long list of things that we’ve done. So, it’s very difficult. We are going to have — we have a lot of work to do. We’ve started that work on the initial AIDA cruises, but I’d be hesitant to extrapolate that across the whole fleet at this point, so — and that would be providing some sort of guidance. So as Arnold said we’re going to come back leaner and more efficient. So I would expect some cost efficiencies versus prior year numbers, but that’s the best I can do at this point given the short period of time we’ve had.

Tim Conder — Wells Fargo — Analyst

Okay.

Arnold W. Donald — President and Chief Executive Officer

And we have so many variables with how quickly we ramp up back, which ships come in, which itineraries are they on and on and on. And so there is a gazillion variables there, but what we do know is we’re going to be back leaner.

Tim Conder — Wells Fargo — Analyst

Okay. Okay. And on the ships that you’re divesting, any commentary that you can give to us as to whether the ultimate buyer, will the majority of those be outright scrapped or will some of those ships stay in the global industry fleet?

Arnold W. Donald — President and Chief Executive Officer

Well, first of all, we don’t scrap ships, we recycle them. So, any ships that aren’t sold into a market that doesn’t directly interfere with our existing markets, which is what we would do. Our sales are basically into uses that are different than our uses for the ships in the markets that we’re in. Then those will go for recycling. David, I don’t know if you want to add any additional color? Go ahead.

David Bernstein — Chief Financial Office and Chief Accounting Officer

Yes. Of the 13, it’s just a few that are recycled. The majority are — the intention we’re told is to use them for a variety of purposes, just a few recycled at this point.

Tim Conder — Wells Fargo — Analyst

So, on recycle, just to be clear, should we view it as — let me rephrase it may be those that would transport customers for cruise related services or hotel related services versus washing machines?

Arnold W. Donald — President and Chief Executive Officer

Yes.

Tim Conder — Wells Fargo — Analyst

Okay. Okay. Okay. And then, lastly, if I may, you — when you’re referring to historical bookings and pricing, just the definition of historical we’re talking in the last 3 years, 5 years, just to make sure we’re thinking about the definition correctly there?

Arnold W. Donald — President and Chief Executive Officer

We’re primarily talking pre-COVID versus now. Go ahead, David. Yeah.

David Bernstein — Chief Financial Office and Chief Accounting Officer

Well, Tim, I’m assuming you’re referring to the historical range on bookings, when you said what range. I think we went back to like 2011 on that.

Tim Conder — Wells Fargo — Analyst

Okay. Okay. Thank you gentlemen.

Arnold W. Donald — President and Chief Executive Officer

Okay. Thank you.

Operator

Our next question comes from Jamie Rollo with Morgan Stanley. Please proceed.

Jamie Rollo — Morgan Stanley — Analyst

Yes, thank you. My first question is just on the order book, please. It doesn’t sound like that you’re planning any cancellations of what sort of order? Or is it just a delay to your order book? Thank you.

Arnold W. Donald — President and Chief Executive Officer

I didn’t quite hear the question, David. If you did, please go ahead.

David Bernstein — Chief Financial Office and Chief Accounting Officer

Yes, it sounded like I kind of — but Jamie, you were talking about any cancellations on the order book versus delay. There were no cancellations what we were just talking about for the each ship was a delay. On average, you’re probably talking about five-month delay for each of the 14 ships plus two Seabourn expedition ships that are on order.

Arnold W. Donald — President and Chief Executive Officer

I think the most important thing there is going down to five versus nine between now and ’22 though. It looks like you had a follow-on, Jamie. Go ahead.

Jamie Rollo — Morgan Stanley — Analyst

Well, it was the same question really. Just wondering if you’re planning any cancellations, I mean nothing so far, but are you in discussions with the yards about canceling any of those ships.

Arnold W. Donald — President and Chief Executive Officer

No, we’re not in discussions about canceling ships. We’re in discussions with the yards about timing of deliveries and whatnot, but not on cancelling ships. Again we’re far enough out what we’ve talked about already that hopefully by then and we’re planning to be directionally back at the capacity that we would have available at that point in time actually being deployed globally.

And at that point, again, the new ships are just far more efficient. We would regulate with demand by, again disposing of less efficient ships rather than trying to avoid bringing on the new ships. The timing of that is important to us, but we would like to have the new ships.

David Bernstein — Chief Financial Office and Chief Accounting Officer

Yes. And Jamie, in terms of timing, building what Arnold was saying, essentially, I think, Arnold did indicate in his prepared remarks that given the ships that were leaving the fleet as well as the new build schedule, it would be 2022, before we got back to the capacity that we had in the second quarter of 2020?

Arnold W. Donald — President and Chief Executive Officer

At the earliest.

David Bernstein — Chief Financial Office and Chief Accounting Officer

At the earliest, correct.

Jamie Rollo — Morgan Stanley — Analyst

Thank you. And then the other question is just on leverage. I think, David, you said you expect to return to investment grade at some point. And I think market expectations of a debt to get to about $20 billion or bit more over the next six months to nine months. I mean, at what point is that sort of too much debt and you might need to raise equity to bring that number down?

David Bernstein — Chief Financial Office and Chief Accounting Officer

So, I would just venture to say that going back to some of my other remarks that our cash flow generation is tremendous, and with the new build schedule stretched out. We have the ability to pay down debt over time. I will point out that $2 billion of that debt is converts. And I do hope that those converts over time, converts equity since the conversion price is only $10 a share.

So, we constantly take a look at our position. Our debt to cap ratio at the end of the second quarter was 50%. Even if I add in the $2.6 billion we raised in June, that only puts us at 53%. So I think we’re in a reasonably good position and with great cash flow generation. My expectation is we’ll pay down the debt over time.

Jamie Rollo — Morgan Stanley — Analyst

Can I just clarify what you said to an earlier question? I think you said that you need about 25% of the ships to breakeven, including the losses for the ships in cold layup. Is that based on any low occupancy or yield numbers based on the 2019 or is that just on the 2019, a level of profitability? I guess the number might be very different if you bake-in a lower load factor?

David Bernstein — Chief Financial Office and Chief Accounting Officer

Agreed. I was just giving you because — instead of giving you guidance, I was giving you — it wasn’t 25%, it was 25 ships which I guess, in our case is close to 25%. But I was just using the 2019 actuals as they exist by ship and for the whole company to give you some framework to do your modeling.

And, yes, obviously, those ships did sail with 100% occupancy. But also keep in mind, when I did this math, I didn’t adjust the SG&A either which would be considerably lower for 25 ships than for a fleet of over 100 ships. So again, it was just to provide you information to help you model not to provide any guidance.

Arnold W. Donald — President and Chief Executive Officer

And in that theoretical modeling 25 ships would be at full occupancy. We’ve got plenty of demand to fill that level of volume once things are resumed. And so that’s not going to be a major issue at that level for sure.

Jamie Rollo — Morgan Stanley — Analyst

Okay. Thank you. Good luck guys. Thank you.

Arnold W. Donald — President and Chief Executive Officer

Hey, thank you, Jamie. Appreciate it.

Operator

Our next question comes from our Brandt Montour with JPMorgan. Please proceed.

Brandt Montour — JPMorgan — Analyst

Hey, good morning, everyone. Thanks for taking my questions. So ticket prices have held up better than other industries in hospitality and travel. And I was just wondering what kind of dynamics you expect to play out as operation start to resume and marketing engines start back up at the industry level?

Arnold W. Donald — President and Chief Executive Officer

Well, we’ll have to see. But again, because of the nature and as I said in the remarks that we have the third lever of capacity. Just the nature of the restart. So it’s going to almost be country-by-country and destination-by-destination.

There’s got to be pent-up demand that we will not, as an industry, be able to service in the early going. And so that obviously creates a positive environment for yield with excess demand over the supply available. There is a good chance that will persist for some time as the world kind of comes back into, as I say, on shoreside, social gathering because that’s the critical thing for us even begun to talk about cruising again, as is the case, that’s already happened in Germany, and it looks like it may happen in Italy soon.

So, with those dynamics, it’s a good environment field and, of course, we’re going to be paying close attention. Obviously, our number one financial consideration is generating cash and positive cash flow. But we think we have the opportunity with the environment that should exist at the time, and the fact that we can direct capacity and manage the capacity introduction that we can keep it in line with demand, where we have a good yield environment as well. David, any additional color you want to add to that?

David Bernstein — Chief Financial Office and Chief Accounting Officer

No. I think that — that’s pretty well covers it.

Arnold W. Donald — President and Chief Executive Officer

Thank you. Okay.

Brandt Montour — JPMorgan — Analyst

That’s helpful, guys. Thank you. And then just a question on your bookings commentary, and it’s great to see that you’re seeing new cruises booking. But just — since you’re seeing most of your brands booking in similar ranges, that might imply you’re not seeing demand differences between older versus younger cruises.

So, just wondering if you could maybe cut the data by age cohort for us, if you’re seeing differentiation there?

Arnold W. Donald — President and Chief Executive Officer

Yes, we’re actually not seeing a big differentiation there except for one general trend which is longer cruises. So obviously world cruises, 21-day cruises that sort of — that is not booking as well obviously as short of cruises, given the environment at the time. Those cruises go to lots of different places where potentially people say, well, what’s the problem there? Am I going to be able to go to all those places given the current situation with community spread et cetera? And so, and that’s the difference.

But most of our brands, on average were — for the bulk of the brands we had about 45 age, median age, kind of average age demand, especially Carnival, Costa, AIDA those brands. And so — and then even with the others, we haven’t seen a booking pattern change between those 65 and older — are those under 65, except for the dynamic of the longer cruises, which appropriately are not booking at the same rate at this point in time. Hopefully, that answers your question.

Brandt Montour — JPMorgan — Analyst

That’s excellent color. Thanks very much and good luck.

Arnold W. Donald — President and Chief Executive Officer

Hey, thank you.

Operator

Our next question comes from Patrick Scholes with SunTrust. Please proceed.

Patrick Scholes — SunTrust — Analyst

Hi, good morning. Quick question. Let’s say hypothetically that CDC this afternoon said you’re free to sail out of Miami. Realistically how many weeks do you think it would take for you to set your first ship out at that point?

Arnold W. Donald — President and Chief Executive Officer

I think again it depends when that happens. But generally speaking, I’d say within 30 days we would be able to sail. Again, we — there’s bunch of dynamics here and there are a lot of other countries are involved. So we have — right now, we’re going to minimum manning on the ships in terms of crew to keep our ongoing costs now. We have to keep the ships operating there in what we call warm layup. We have people on, but it’s with a minimum crew.

So, we have to get crew back. Depending on the circumstances and what the protocols are that could be a shot or longer period of time if we’re quarantining crew for a period of time before they go back on board, which could be the case, et cetera, that required more time. But I would say in a lot of different scenarios, within 30 days of knowing when we could cruise we would be in a position to be prepared to — it’s just a kind of thumb nail kind of a thing.

Patrick Scholes — SunTrust — Analyst

Okay. Very good. Thank you much.

Arnold W. Donald — President and Chief Executive Officer

Thank you. One last question, operator.

Operator

Our next question comes from Felicia Hendrix with Barclays. Please proceed.

Felicia Hendrix — Barclays — Analyst

Hi, there. Thank you. Finally in.

Arnold W. Donald — President and Chief Executive Officer

Hi, Felicia.

Felicia Hendrix — Barclays — Analyst

First, I just want to thank you all for the tremendous color in detail on this call, both in the Q&A and in the prepared remarks. It’s been super helpful in a very cloudy time. So and with that, as a theme, Arnold, I know, at this point, it’s probably really difficult for you to opine if you can actually sail in the U.S., as of mid-September.

So, I’m not going to ask you that. But I am just wondering at what point in time due delays and starting up start to affect the 2021 booking curve? And just on the booking curve, just the language in your release seems to have changed a tad. So I’m just wondering if I’m leading too much into this before you were saying that almost two-thirds of the bookings for 2021 were cash bookings and now that language is saying that it’s somewhat 60%?

Arnold W. Donald — President and Chief Executive Officer

Okay. I’ll let David add some details to it. But just in general, again, we are encouraged by the bookings. But the ’21 booking curve has already been impacted with just the circumstances. Obviously, at this point in time, this year if there has been no COVID, we’ll be talking about different kinds of booking numbers. But David, you might want to more than what we have to address the question.

David Bernstein — Chief Financial Office and Chief Accounting Officer

Yes. So, it’s just different time periods. And so there was a time period and — I remember the two-thirds distinctly — excuse me, I don’t remember the exact time period you referred to, but the 60% was more current, and as opposed to the two-thirds. One of the things keep in mind when you think about all of this, in terms — it’s not shocking that this is going to change over time because as people get their FCCs many of them are not turning around and immediately rebooking. We have quite a number of FCCs that are still yet applied.

And the reason for that, if you think about it, if your cruise was canceled in April, May or June, you still have to like reorganized with your family, you have to plan vacation and do a lot of different things before you rebook your cruise. So logically, over time, we’ll see the remainder of those FCCs booked. And we do have quite a few, in fact, the majority — the overwhelming majority, have yet to rebook. And that is not in the bookings statistics that we have provided.

Felicia Hendrix — Barclays — Analyst

That makes a lot of sense. And then just — and that kind of gets me on your customer deposits for ’21, you gave enough us a lot of good color for what cadence for ’20. Have you — can you give us the complexion of your ’21 deposits? What is the cadence of cancellations, if any, has been there? And David, also while I have you, it’s just housekeeping, just wondering if you can issue more secured debt?

David Bernstein — Chief Financial Office and Chief Accounting Officer

Sure. So ’21 deposits — so the overwhelming majority, I think we had indicated that it was about $500 million of deposits to $475 million relating to cruises in the back half of 2020. And so the overwhelming majority of the $2.9 billion was ’21 deposits. Generally speaking, I mean, occasionally we get somebody calls and does a cancellation for ’21 deposit, but those are pretty normal, people occasionally get sick, plans change things happen.

That’s in the normal course and we haven’t seen any dramatic changes in that environment. And as far as the additional secured debt, we do have some additional capacity on a second lien basis to do additional secured debt.

Felicia Hendrix — Barclays — Analyst

Okay. Thank you.

Arnold W. Donald — President and Chief Executive Officer

Great. Thank you. All right, everyone, Robin, you asked early on question, but all of you — I’d like to invite all of you, July 28, you can go to the following site to register, it’s CovidScienceSummit.com — CovidScienceSummit.com. We’re producing for the WTTC that’s the World

Travel and Tourism Council, gathering of well renowned scientists to give the current state of understanding and knowledge about COVID-19, everything from the epidemiology to transmission to detection, prevention, treatment and practically giving where society is today, what seems to be the best knowledge around how society can effectively manage through the virus. So to be, as you know, this information is constantly changing in terms of knowledge around COVID-19, but it will be, at that point in time, some of the best minds in the world sharing their perspectives.

So, you all welcome to attend. It’s free and open to the public and is jointly hosted by ourselves at Carnival Corporation and WTTC.

With that, I thank you for your time today. We really appreciate your interest and the questions. We’re very much looking forward to resuming in Germany, and eventually everywhere around the world. And again, I couldn’t be more proud of our entire team managing through what has been a very challenging time, but also a time that we’re using to get leaner and stronger and come out even more powerful than we were before. So thank you all for your attention. Thank you, operator.

Operator

[Operator Closing Remarks]