Without doubt, Carnival Corporation (NYSE: CCL) did not have a good year in 2020. The COVID-19 pandemic halted its operations and negatively impacted its financial performance. The company reported a net loss for the fourth quarter of 2020 and does not expect to reach profitability in the first quarter of 2021 either.
However, the pent-up demand for travel along with the actions the company is taking to sustain its business provide optimism that once the pandemic subsides, Carnival will see a recovery. The stock has dropped 60% over the past one year but has gained 42% in the last three months.
Demand and bookings
One of the main factors that drives optimism is the pent-up demand that Carnival expects to take advantage of once it is able to resume normal operations. This demand is visible in the booking trends. Cumulative advance bookings for the second half of 2021 are currently within the historical range. However, cumulative advance bookings for the first half of 2022 are ahead of 2019, reflecting the long-term demand for cruising.
Due to the pause in guest operations in 2020, Carnival will compare its future booking trends to 2019 as opposed to the prior year. Approx. 60% of bookings taken for FY2021 were new bookings with the remainder being future cruise credits (FCC) rebookings. Around 45% of the 2021 bookings comprise guests who are new to the brand while the remaining 55% are brand loyalists.
Carnival has resumed operations on a limited basis for its Costa and AIDA brands in Italy and Germany respectively, while adhering to strict health protocols. The company is working on restarting operations in Asia, Australia, the US and the UK over the course of 2021. The availability of vaccines for COVID-19 is another factor that provides hope in terms of driving recovery for the company.
The pandemic led Carnival to restructure its fleet and remove some of its ships earlier than expected in FY2020 as opposed to selling them over the coming years. The company will dispose of 19 ships in total, which will reduce capacity by 13%. This action will also reduce unit costs by 2% and unit fuel consumption by 1%.
The phased re-entry of ships and delays in new ship deliveries are also expected to moderate future capacity. The company took delivery of two ships and expects one more delivery in FY2021 versus the previously-expected number of five ships for this year.
Cash, profits and outlook
For the fourth quarter of 2020, Carnival reported GAAP net loss of $2.2 billion and adjusted net loss of $1.9 billion. Due to negative impacts from the halt in operations, the company has forecasted a net loss on both a GAAP and adjusted basis for the first quarter and full year ending November 30, 2021.
Carnival ended FY2020 with $9.5 billion in cash and the company said it has enough liquidity to manage throughout 2021 even in a zero-revenue environment. Monthly average cash burn for Q4 2020 was $500 million, which was better than expected due to the timing of capital expenditures. For the first quarter of 2021, the monthly average cash burn is projected to be approx. $600 million.
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