Carnival Corporation to Dispose of 13 Cruise Ships, Eyes Restart in Italy

(1 p.m. EDT) -- Carnival Corporation & plc noted it intends to dispose of 13 ships across its global cruise fleet, even as cruising for different European nationalities is starting to emerge among the company's nine cruise brands.

The announcement came during the company's second quarter earnings results call today. While Carnival Corp. is best known among English-speaking cruisers. for the popular lines Carnival Cruise Line, Cunard, Holland America Line, P&O, P&O Australia, Princess, and Seabourn, it also owns the Germany-language cruise line AIDA as well as Costa in Italy.

Short cruises for Germans are resuming on AIDA in August. On the call, Carnival Corporation president and CEO Arnold Donald said that regional lines like AIDA were key to the corporation's overall restart plans, hinting that cruises in Italy would likely be the next to restart.

"We will emerge a leaner, more efficient company," said Donald. " We have aggressively shed assets while actively deferring new ship deliveries. We are working hard to resume operations while serving the best interests of public health with our way forward informed through consultation with medical experts and scientists from around the world."

More Ships to Leave Carnival Corporation Brands

The 13 ships include the six vessels previously announced to be leaving the Corporation's global cruise fleet, along with four vessels that were announced last year.

Carnival Corporation notes it has secured firm agreements for the disposal of five ships, plus tentative agreements for three more, all of which will transition out of their respective fleets in the next 90 days.

More pertinent for cruisers, the company did not provide the names of these vessels, nor a timeline for when passengers will be notified of the changes.

Costa Atlantica and Costa Mediterranea were previously announced to be joining Carnival's new partnership China State Shipbuilding Corporation. Pacific Aria and Pacific Dawn, currently part of the P&O Australia fleet, will leave to Cruise & Maritime Voyages.

The number also includes Costa Victoria and P&O's recently-departed Oceana, leaving a total of seven ships that have not yet been announced. The vessels will likely not come from a single brand, with the least-efficient ships being transitioned out of the fleets first.

Asked by investors whether these ships were destined for scrapping, Donald demurred.

"First of all, we don't scrap ships, we recycle them," Donald said. "Our sales are into uses that are different than our uses and our markets. Those would go for recycling."

"Of the 13, it's just a few that are recycled," said Carnival Corporation chief financial officer David Bernstein. "The intention, we're told, is to use them for a variety of purposes. Just a few recycled as this point."

Italy Could See Cruising Restart After AIDA

Donald also provided some insight into where cruises may resume next, noting that negotiations with the Italian government were progressing well. He said that regional brands -- ones that attract cruisers from one primary nationality -- would be key to restarting. These include AIDA, which draws primarily German-speaking passengers; P&O Cruises, which draws a predominantly British passenger; Costa, which sources from mainland Europe; and Carnival, which is primarily American-based.

"The fact that these brands are characterized by ready access with drive-to markets and the availability of shorter cruises strengthens our position in this environment," said Donald.

Without mentioning Costa by name, Donald did say that cruising was close to restarting in Italy and was confident in the health and safety protocols put in place for AIDA's restart.

He also noted that AIDA received over 1,000 bookings for its recently-announced August sailings in a single day alone, nearly selling out the first voyage: a three-day cruise to nowhere departing August 5, 2020 aboard AIDAperla.

"There's a lot of pent up demand," said Donald. "That doesn't mean we don't have work to do once we start cruising with larger volumes to attract new-to-cruise passengers. With the staggered resumption of cruising we should have enough pent-up demand to fill the ships."

No Cancellations for Newbuilds, but Definite Delays

Carnival Corporation said that it has no plans to cancel any newbuilds that are currently on-order at this time.

The Corporation will, however, defer and delay some of the vessels on-order. It estimates that only five of the nine ships originally slated to be delivered in fiscal 2020 and 2021 will be delivered by the end of 2021. It also expects ships scheduled to come online in 2022 and 2023 to be delayed as well.

We're not in discussions about cancelling ships," said Donald. "We're in discussions about timing, about deliveries. The new ships are far more efficient. We would rather regulate demand by disposing of less efficient ships rather than trying to avoid bringing on the new ships. The timing of that is important, but we would like to have the new ships."

Bernstein noted that each newbuild will be delayed by approximately five months and pointedly included the two new expedition vessels scheduled for Seabourn as being similarly affected. Seabourn Venture was scheduled to debut in June 2021, with an as-yet-unnamed vessel joining the fleet in May 2022.

No Progress with the CDC

Asked about the progress being made with the U.S. Centers for Disease Control and Prevention (CDC), Donald admitted that none had been made in establishing return-to-cruise policies. Most Carnival Corporation brands are on an operational pause through the fall.

"At this point the conversations with the CDC have all been around the current pause and the handling of the ships during the pause," said Donald. "We have not gotten to the point of serious resumption of cruise discussions with the CDC but that's coming."

The CDC currently has a "no-sail" order in place that is due to expire on July 24 unless it is renewed. The Cruise Lines International Association (CLIA) has issued a mandate to further pause sailings of its member lines, including those belonging to Carnival Corporation, through September 15 for voyages operating in U.S. ports.

When asked about how quickly the brands could restart once given the green light, Donald said it would take roughly 30 days to get a ship crewed up and in service.

He noted, though, that depends on a variety of factors, including logistical challenges in bringing crew back onboard, and possible crew quarantines that would occur onboard before any passenger voyages could commence.

Bookings Strong for 2021, But Longer Cruises Slow to Book

Carnival Corporation said in its second quarter results that almost 60 percent of bookings received during the first three weeks in June for 2021 were new bookings. The remaining bookings were all Future Cruise Credit (FCC) rebookings.

Approximately half of affected passengers have requested refunds, while the remainder have stuck with FCC. CFO Bernstein noted that the bulk of these FCCs have yet to be converted into bookings.

"Were very encouraged by the booking patterns we see right now," said Donald.  "We have substantial new bookings and we even have new to cruise bookings which, given the current environment in the world, is a good testament to how strong a cruise vacation really is."

Asked about whether bookings were down at Princess, which was disproportionally affected by COVID-19 outbreaks, Donald noted that bookings across all Carnival brands were trending with the other brands in the industry and had not bottomed out.

He specifically referenced 2012 and 2013, when the sinking of the Costa Concordia and the loss of power aboard Carnival Splendor and Carnival Triumph attracted negative media attention and resulted in low bookings for some brands. He noted that none of the cruise brands, Carnival Corporation-owned or otherwise, have experienced the same kind of bookings downturn that 2012-2013 brought.

Demand for world cruises and longer, multi-week voyages were, however, not as strong as shorter voyages, due to perceived operational difficulties in the face of the ongoing global COVID-19 pandemic.

"World cruises, 21-day cruises, these are not booking as well obviously as shorter cruises given the environment we're in," said Donald. "Those longer cruises go to different places and people say, 'What' s the probability of being able to go to all those different places?'"

Looking to the Future

Donald noted that while Carnival Corporation's monthly expenditures continue to be high (the company burns through $650 million per month in necessary costs to keep ships operational), the Corporation has enough liquidity to see it through to the end of next year in a zero-revenue environment.

With AIDA restarting in Germany in a month's time and the outlook brightening for at least some cruise operations in Europe restarting before the end of the year, that capital should be more than sufficient to see Carnival's brands weather the storm, he said.

"We're working hard to resume guest operations and we're working to ensure we serve the best interests in public health," said Donald.