Like the airline industry, the leisure travel industry was badly impacted by the coronavirus outbreak and the travel restrictions that accompanied it. Carnival Corporation (NYSE: CCL), a leader in the vacation cruises space, is struggling to recover from the impact of the pandemic and it looks like the company might have to face some more rough weather before the skies clear.
Overview
Carnival Corporation is a leading cruise company that has
operations in North America, Australia, Europe and Asia, and owns nine of the
world’s major cruise lines. The company’s portfolio includes the Carnival
Cruise Line, Princess Cruises, Holland America, Costa, AIDA and Cunard cruise
lines.
Past performance
Carnival generated $15.7 billion in revenue in 2015 and this
number has increased consistently over the past five years to reach $20.8
billion in 2019. The company’s 2019 revenues reflect a 32% increase from the
2015 number and a 10% increase versus $18.8 billion in 2018.
The company has also seen a steady growth in profits with
adjusted EPS increasing 62% from $2.70 in 2015 to $4.40 in 2019. Adjusted EPS
in 2019 increased 3% compared to 2018. At the end of 2019, Carnival had 104
ships with a capacity of 249,000 lower berths.
The company also had 17 new ships scheduled to be delivered
through 2025. In addition, Carnival achieved over $125 million of cost savings
during the year and returned $2 billion to shareholders.
However, the company did face its share of challenges in
2019 which included regulatory changes that prevented travel to Cuba,
geopolitical issues in the Arabian Gulf, Hurricane Dorian, dry-dock and
shipyard delays, which led to cruise cancellations and yields being impacted by
shorter booking windows. Despite this, the year ended relatively well.
COVID-19
Then came 2020 bringing the COVID-19 pandemic with it. The global
health crisis threw the world into a state of complete lockdown with all forms
of travel banned. Leisure travel took a hard hit as cruises came to a halt.
In the first quarter of 2020, Carnival reported revenues of
$4.8 billion that were slightly higher than the prior-year period but adjusted
EPS came in lower than the previous year at $0.22. The company reported a GAAP
loss of $1.14 per share in the first quarter, with an approx. $0.23 per share impact
from COVID-19-related voyage cancellations and disruptions.
The pandemic also negatively impacted the company’s bookings
during the period from January-end to mid-March. The situation only got worse
in the second quarter as guest cruise operations remained halted for a majority
of the period.
Revenues fell to $0.7 billion from $4.8 billion in the
previous year while adjusted loss amounted to $3.30 per share. The company has decided
to sell six of its ships over the next month and a half. Carnival also suspended
its dividends and share repurchases to improve its liquidity.
Looking ahead
At present, Carnival is unable to predict when it will be
able to return to normal operations and the disruption continues to impact its
business as a whole. The company expects future capacity to moderate due to the
phased re-entry of its ships, the removal of capacity from its fleet and delays
in new ship deliveries.
It is likely that the leisure cruise industry might not
return to normal anytime soon. The effects of the pandemic are yet to subside
completely and even when it does, it could take some time for demand to pick
up. The economic weakness brought on by the health crisis is likely to lead
people to put off discretionary expenses like cruise plans.
The company is likely to incur additional costs as it follows health and safety protocols to prevent further outbreaks. Carnival expects the monthly average cash burn to be approx. $650 million for the second half of 2020.
Carnival is unable to provide a specific earnings guidance at this time but in light of the current situation, the company believes it will incur a loss on a reported and adjusted basis for fiscal year 2020.