Carnival (CCL) is still caught in the proverbial perfect storm created by the global COVID-19 pandemic. When it eventually exits that whirlwind — and in what form financially and operationally — is anyone’s guess.
But Carnival’s long-time CEO Arnold Donald is confident the company will emerge and be ready to cater once again to cruise goers young and old.
“We have been fighting for the survival of the company,” Donald tells Yahoo Finance in an interview. “I think initially we will come out operating smaller than we did than before we went into this. That’s because there won’t be some light switch. Every destination won’t open simultaneously. Every world market is not going to have the same protocols. That’s not going to happen. It kind of shutdown gradually as the virus moves from East to West and I suspect it will open gradually as different jurisdictions and destinations determine their own way forward concerning public health.”
Make no mistake though, it has been a tough few months for the world’s largest cruise operator and the industry at large.
Carnival’s Diamond Princess and Grand Princess ships for weeks on end were the faces of the COVID-19 outbreak. Thousands of passengers were trapped on the quarantined ships, with many live broadcasting their experiences on Twitter and Instagram. COVID-19 infections and deaths among passengers on the two ships mounted through March.
Meanwhile, other cruise lines in the industry also battled through COVID-19 infections and the damaging headlines.
By mid-March, the CDC slapped a no sail order on the entire industry as the disease spread on land. It’s unclear when that order will be lifted — the earliest could be July 24.
Sales and profits have essentially dried up for all parties involved right along with visibility into future bookings, sending executive teams off to find ways to cut costs and raise liquidity to ride out the storm. The mad dash for cash comes after the industry was left out of the $2 trillion government stimulus package because of the businesses being domiciled for tax purposes abroad instead of in the U.S.
Hopefully over compensating
Over the course of several weeks, Carnival’s Donald has taken swift action to shore up the balance sheet. The company has raised a total of $6.4 billion in liquidity through a mix of debt and equity. It also tapped the majority of its $3 billion credit revolver.
Carnival now also counts Saudia Arabia’s sovereign wealth fund as an 8.2% shareholder after it bought a stake in the company via a public share offering.
“Hopefully we are over compensating,” Donald says of the rush for liquidity. “We continue to seek additional liquidity, whether it’s delaying debt maturities, whether it’s participating in stimulus packages around the world where it’s appropriate for us to participate in them,” Donald says, adding the company is further focused on driving down costs to conserve cash.
Donald continues, “We feel confident we could go through the year — we hope we don’t have to — but can go through our fiscal year and push beyond that and there is a possibility we can go even longer with zero revenues coming in and still be able to have a company at the end of this.”
Carnival’s stock has subsequently rallied 11% in the past month. Royal Caribbean (RCL) and Norwegian Cruise Line (NCLH) have tacked on 34% each, as the Street grows hopeful the industry will survive in the medium-term because of the cash raises.
“Cruise stocks will likely continue to trade together in the near term, and we don't expect focus to return to fundamentals (asset and management quality and growth drivers) until a resumption of operations becomes more imminent,” notes JPMorgan analyst Brandt Montour. “We see medium term fair value for CCL above current levels (but with the least upside of the three), and see this crisis weighing on its growth to a greater degree and for a longer period of time versus peers (due to more direct brand exposure). However, as the largest, most diversified Cruise Line with the most liquidity, shares could outperform in the near term due to the perception of relative safety.”
Contends Donald, “Eventually I think the cruise industry will be as robust as ever and be back on the road forward once society adapts to COVID-19.”
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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