Carnival Corp (NYSE: CCL stock) is the largest leisure cruise line operator in the world. The company holds a 22% market share by passenger volume. Carnival and the leisure travel sector are having one of their worst ever years as the spread of the coronavirus keeps travelers at home during peak season.
The entire cruise sector has been in shutdown after the CDC(Center For Disease) enforced a no sail order till the 24th of July. With the cruise industry being extremely capital and cost-intensive, all operators are in the process of cut-throat cost reduction and possible reduction of workforce. Under a zero revenue scenario like this no-sail-order, Carnival expects a mammoth cash burn of $1 billion a month in Q1 and about $600 million in later quarters. (Benzinga)
On Friday, the company announced a redundancy plan that involves job eliminations, furloughs, salary cuts and involuntary reduction in working hours. The company announced that these will mainly affect shore-side employees and most job eliminations would be permanent. The company stated that there 820 permanent firings and 537 furloughs in the Florida region where the company has a workforce of 3000 employees. Management said these decisions will save hundreds of millions in liquidity. Senior Management has also taken pay-cuts in the region of 20%-50%.(Miami Herald)
After drawing completely on its $3 billion credit facility and raising fresh capital, the company has total liquidity of $9.5 billion, which is ample to survive the year under a zero revenue scenario. Last month, the company raised $6.4 billion of fresh liquidity through a combination of equity and debt (Yahoo Finance). Of the debt, $4 billion in secured against ships and carries an interest charge of 11.5% and the remaining $2 billion in convertible bonds that cost 5.75% (InvestorPlace). The company’s debt is rated at BBB(Barrons).
Last week, when the company announced reopening and cruise departures for the 1st August, Carnival saw a 600% jump in reservations YoY, a very encouraging sign. (WFLA)