Carnival Corporation (CCL): The coast is not yet clear despite new regulations

Carnival Corporation (NYSE: CCL) has had a rough year thus far in 2020 due to the COVID-19 pandemic and the halt in leisure travel. Shares have tanked over 71% since the beginning of the year and over 20% in the past three months. The stock picked up on Tuesdaystaying ingreen territory as new guidelines came out for cruising operations to resume.

The Cruise Lines International Association has issued mandatory health protocols which could allow cruise lines to resume operations by the end of this month. Despite this ray of hope, the resurgence of COVID-19 in many places still puts the fate of cruises in doubt. Any spike in coronavirus cases could lead to further restrictions or total cancellations.

Cancellations and operations

Carnival’s P&O Cruises UK and Carnival Cruise Line brands have cancelled cruises this year with P&O putting all its cruises on hold till January 2021 due to travel restrictions in the UK. But the Costa brand resumed guest cruise operations at the beginning of this month and the AIDA brand plans to restart guest cruise operations in fall 2020.

Carnival believes leisure travel has proved to be more resilient than business travel as it cannot be replaced with video conferencing and other means of technology. However, leisure travel has the drawback of being a discretionary expense which people can afford to put off as long as they please.

In the current environment, even if cruise line operations were to begin, there is a chance that people might hesitate to start traveling as they could fear being infected or they could be put off by the heavy safety regulations.

Trimming of fleet

Carnival is trimming its fleet and will remove 18 less efficient ships which is expected to reduce capacity by 12% while lowering the cost base and allowing to retain the most cash generative assets in the portfolio. This suggests a heavy need for the company to save cash.

In a recent filing, Carnival disclosed that the cash burn rate in the third quarter of 2020 and the fourth quarter expected rate are in line with its previously disclosed expectation. On its Q2 call, the company had said its monthly average cash burn rate for the second half of 2020 was estimated at $650 million per month.

Preliminary numbers

Last week, Carnival released its preliminary results for the third quarter of 2020. The company expects to incur a loss of $2.9 billion on a GAAP basis while adjusted net loss is expected to be $1.7 billion. Cash and cash equivalents totaled $8.2 billion at the end of the quarter.

As of August 31, 2020, cumulative advanced bookings for the second half of 2021 capacity currently available for sale are at the higher end of the historical range. The company continues to take bookings for both 2021 and 2022.  

Click here to read Carnival Corporation Q2 2020 earnings call transcript