Will CCL survive the Coronavirus?

[TriumphGuy]

Not spending a penny on another cruise until we see our promised refund and FCC. Cancelled March 7, still waiting...

[Steve Q]

Below is a link to the latest article regarding the solvency issue. While it specifically addresses the issue with Carnival, Norwegian and Royal are mentioned.

I also thought it was interesting to note that one analyst stated that it could be up to a year for things to return to normal. Also, the cruise lines are planning to significantly reduce fares. Those that believe there is going to be a rush to book cruises might be mistaken.

 

https://www.cnbc.com/2020/04/05/carnivals-struggle-to-survive-the-coronavirus-as-outbreak-wipes-out-the-cruise-industry.html

[iancal]

I agree.  I simply do not understand anyone's rush to book a cruise at the moment because of a perceived low price for the cruise or the air.    

 

Besides the fact that the cruise line may not be around next year it would only be common sense that many would be cruisers will be reluctant to book.  Once the cruise lines get a ship in operation they will need to fill it.  I expect to see some attractive fares at this time.  Premium fares will only serve to drive away business to other travel options/products.

[DFD1]

I would guess you'll see fares significantly reduced as the cruise industry claws back to normal business levels.

 

A ship sitting idle does not make a cent. One sailing full, even at reduced fares, makes an important contribution to the company's ability to survive.  For me, it's a good to to wait and see how this all shakes out.

 

That's not to say I'm gleeful over the situation....on the contrary, it's dreadful and I hate it for everyone involved.

Edited April 5, 2020 by DFD1

[Hlitner]

1 hour ago, DFD1 said:

I would guess you'll see fares significantly reduced as the cruise industry claws back to normal business levels.

 

A ship sitting idle does not make a cent. One sailing full, even at reduced fares, makes an important contribution to the company's ability to survive.  For me, it's a good to to wait and see how this all shakes out.

 

That's not to say I'm gleeful over the situation....on the contrary, it's dreadful and I hate it for everyone involved.

So lets talk about some facts.  CCL is currently bleeding approximately $1 Billion per month.  Last week CCL worked at increasing their cash and credit and likely have access to over $7 Billion cash.  They are now contemplating  putting some of their vessels into what is known as "cold layup" which is a complex operation intended to prepare a vessel for many months of inactivity with only a minimum number of maintenance personnel aboard.  CCL says they can save about a million dollars per month per ship once the vessel is in "cold layup."  CCL has just over a hundred vessels so you can do the math.  Getting a ship back into operation after cold layup will take at least 3 weeks.

 

As to reduced fares, we expect the opposite!  Why?  CCL cruise lines have been giving out very generous FCCs and now have a huge future liability related to those FCCs.  One easy way to devalue the FCCs is to increase prices...in a big way.  In fact, if they were to double the price of a cruise,  any applied FCC would essentially be worthless if you compared  it towhat you would eventually pay to the cruise you cancelled.  I am not sure this is what is going to happen, but there have been numerous posts that similar cruises a year from now have very high prices.  Since the FCC's generally must be used within one or two years it might be hard to find bargains during that time frame.

 

Hank
 

[DFD1]

I don't agree. Time will tell.....

 

I do agree, however that taking FCC's right now for future cruises is not a good idea. Too much risk.

[iancal]

Given the state of the industry I cannot imagine taking a FCC.

 

Bottom line for us is we do like cruising. But it is one of several travel options.  If we perceive that, lets say, a Med cruise is grossly overpriced then we will simply do a land trip.  If a last minute offer comes up while on the land trip, we will look at it.

 

We put off a SA cruise for 2 seasons until a price was presented that we were comfortable with.  Same for any other cruise.  If the cruise lines over price their cruises in 2021 the only impact to us will be a decision  to buy other travel products and take other types of vacation.    It is not as though cruising is the only travel or vacation game in town.

 

  On our last two trips to Europe we have passed on incorporating a cruise because the prices were not competitive  with our land prices and were much higher than we paid in the past-even for late booking offers.  This past Sept/Oct we did exactly that.   Looked at Med cruises, then decided on four weeks in Greece island hopping and another two in Cyprus because in our view Med cruises were overpriced and no longer competitive with our land options.  The more this happens, the less we want to cruise.

Edited April 5, 2020 by iancal

[npcl]

57 minutes ago, Hlitner said:

So lets talk about some facts.  CCL is currently bleeding approximately $1 Billion per month.  Last week CCL worked at increasing their cash and credit and likely have access to over $7 Billion cash.  They are now contemplating  putting some of their vessels into what is known as "cold layup" which is a complex operation intended to prepare a vessel for many months of inactivity with only a minimum number of maintenance personnel aboard.  CCL says they can save about a million dollars per month per ship once the vessel is in "cold layup."  CCL has just over a hundred vessels so you can do the math.  Getting a ship back into operation after cold layup will take at least 3 weeks.

 

As to reduced fares, we expect the opposite!  Why?  CCL cruise lines have been giving out very generous FCCs and now have a huge future liability related to those FCCs.  One easy way to devalue the FCCs is to increase prices...in a big way.  In fact, if they were to double the price of a cruise,  any applied FCC would essentially be worthless if you compared  it towhat you would eventually pay to the cruise you cancelled.  I am not sure this is what is going to happen, but there have been numerous posts that similar cruises a year from now have very high prices.  Since the FCC's generally must be used within one or two years it might be hard to find bargains during that time frame.

 

Hank
 

When you take their last 10Q and look at the current liabilities and current assents.  Take into account the 45% rate that CCL has said they are getting in people taking FCC's instead of loans, factor in the 6.25 billion and the 2.8 billion revolving loan, they would have between 4-5 billion left for operations for the rest of the year.

[AL3XCruise]

1 hour ago, Hlitner said:

CCL is currently bleeding approximately $1 Billion per month.  Last week CCL worked at increasing their cash and credit and likely have access to over $7 Billion cash.  They are now contemplating  putting some of their vessels into what is known as "cold layup" which is a complex operation intended to prepare a vessel for many months of inactivity with only a minimum number of maintenance personnel aboard. 

 The last information I saw from CCL (not independent analysts) discussed removing hotel staff and possibly trimming other teams slightly, but keeping the ships capable of operating at sea.  My understanding is cold-layup is more akin with removing all but fire watch and a couple emergency techs and either docking or rafting up with other ships.  I haven't seen that proposed by any of the major lines yet, but I may have missed it.

 

1 hour ago, Hlitner said:

As to reduced fares, we expect the opposite!  Why?  CCL cruise lines have been giving out very generous FCCs and now have a huge future liability related to those FCCs.  One easy way to devalue the FCCs is to increase prices...in a big way.  In fact, if they were to double the price of a cruise,  any applied FCC would essentially be worthless if you compared  it towhat you would eventually pay to the cruise you cancelled.  I am not sure this is what is going to happen, but there have been numerous posts that similar cruises a year from now have very high prices.  Since the FCC's generally must be used within one or two years it might be hard to find bargains during that time frame.

 

That is an interesting point, and I'm sure that it is being considered.  Keeping prices high at the moment is likely a strategy decisions as well; I'd hazard a guess that price sensitive customers are less likely to book during a period of uncertainty.  

 

Of course, the big question is what happens on return to service.  There are just to many questions for us to really make an informed opinion.  My gut tells me that FCCs will not make up for the drop in demand, forcing prices lower.  In addition, filling ships generates much needed on-board revenue.  But I don't have the data to back that up, so its an opinion that is worth what you are paying for it.

 

[KirkNC]

Interesting idea, devaluing the FCC through higher prices.  Devious, I like it.  As the previous posts said and I agree, not sure it will work as I don’t think there will be enough FCC to fill a ship.  By HAL’s own figures, 55% are taking cash.

[iancal]

The current 'take' rate on FCC's may indeed by 45 percent.  But that does not mean that this percentage will hold over the next few months as this scourge winds it way through.  We are only at the start of this.  Many cruises that are in reality cancelled have not been yet been officially cancelled by the cruise line.

 

As we move forward the FCC option my become less attractive as concerns grow over the financial stability of the cruise lines.  Whether that 45 percent is based on the number of cruises that have been cancelled to date  or the percentage of fare dollars  is another matter.

 

It is similar to saying bookings are up 9 percent YoY..  Perhaps they were....at a point in time.  These things can and do change rapidly.

Edited April 5, 2020 by iancal

[rkacruiser]

3 hours ago, Hlitner said:

They are now contemplating  putting some of their vessels into what is known as "cold layup" which is a complex operation intended to prepare a vessel for many months of inactivity with only a minimum number of maintenance personnel aboard.  CCL says they can save about a million dollars per month per ship once the vessel is in "cold layup."  CCL has just over a hundred vessels so you can do the math.  Getting a ship back into operation after cold layup will take at least 3 weeks.

 

I don't doubt what you are saying, but where are you learning this information?

[bouhunter]

1 hour ago, iancal said:

 

 

As we move forward the FCC option my become less attractive as concerns grow over the financial stability of the cruise lines.  Whether that 45 percent is based on the number of cruises that have been cancelled to date  or the percentage of fare dollars  is another matter.

 

 

However as we move forward there will likely be less $$ in refunds and FCC both.  I suspect fewer and fewer people will be making final payments, so at some point the refunds/FCC will be smaller amounts for deposits only.

Edited April 5, 2020 by bouhunter

[Hlitner]

1 hour ago, rkacruiser said:

 

I don't doubt what you are saying, but where are you learning this information?

Multiple sources including several major online  financial services.  There is no secret to the CCL cash situation as it was common news on the "street" this past week.  As to putting ship's into cold layup this is something that has generated curiosity among many industry followers.  The best readable story I have seen on the subject can be found at 

https://thepointsguy.com/news/cruise-lines-could-store-ships-months-coronavirus/

The editor of that site, Brian Kelly, is a very highly respected travel insider with an impressive track record.  On this particular topic we have no hard info that any of the cruise lines have finalized decisions on cold layups.....but there is little doubt that its an idea under consideration.

 

Hank

 

 

[rkacruiser]

13 minutes ago, Hlitner said:

Multiple sources including several major online  financial services.  There is no secret to the CCL cash situation as it was common news on the "street" this past week.  As to putting ship's into cold layup this is something that has generated curiosity among many industry followers.  The best readable story I have seen on the subject can be found at 

https://thepointsguy.com/news/cruise-lines-could-store-ships-months-coronavirus/

The editor of that site, Brian Kelly, is a very highly respected travel insider with an impressive track record.  On this particular topic we have no hard info that any of the cruise lines have finalized decisions on cold layups.....but there is little doubt that its an idea under consideration.

 

Hank

 

 

 

Thanks for your reply.  I will read that link as soon as I can.  I mistakenly thought that the decision had been made for a cold lay-up for some ships from what you wrote.  

[sppunk]

Cruising will definitely not be “back” fully in a year. Economic devastation reigns so people won’t have discretionary money and cruising will be far down the list next to theme parks, resorts, weekend getaways.

 

I seriously question if Veendam and Zaandam ever sail again with passengers. Hell, I question if the full R-class remains. 

[DCCruiser57]

An interesting article.

 

https://www.foxnews.com/travel/cruise-bookings-2021-coronavirus

[npcl]

39 minutes ago, DCCruiser57 said:

An interesting article.

 

https://www.foxnews.com/travel/cruise-bookings-2021-coronavirus

This has been talked about in several of the streams.

 

The comparison is 2021 vs 2020 cruises booked 9 months prior to the start of the year.

 

So first of all what percentage of cruises are booked at least 9 months in advance.  Then to that baselines figure out how many cruises have already been canceled this year and people have taken FCCs and booked for next year as well as people canceling before final payment and booking next year figuring that it will be safe by then.  That is why you are seeing the 9% increase.  I expect with additional cancellations to occur and additional FCCs you will continue to see the 2021 bookings ahead of 2020 for the next few months.

 

The biggest question is how many cash bookings are being made.

[Langoustine]

On 4/3/2020 at 10:31 PM, shanni-shanni said:

if a bankruptcy does happen, am I better off being a creditor?

You will be an unsecured creditor and will lose everythinhg.

[LMaxwell]

How are FCC's considered on a companies books?  Liabilities? 

 

And, at whatever point an FCC is redeemed and/or expires it converts to revenue? 

[HappyInVan]

Here's a useful article from CNBC. Quite comprehensive and covers recent developments...

 

https://www.cnbc.com/2020/04/05/carnivals-struggle-to-survive-the-coronavirus-as-outbreak-wipes-out-the-cruise-industry.html

 

 

[iancal]

CCL may survive.  I think they will however a business restructure may be required.

 

The real question may be whether all of the cruise lines under their corporate umbrella survive.  CCL may well decide to cut one or more cruise lines  loose to bankruptcy  in order to improve their short and long term corporate health.  I would think that there is a fair amount of risk for any of their weaker children.

 

It would not surprise me if some bean counter was reviewing the various cruise line income statements, balance sheets, comparative financial performance over the past few years, and financial projections prior to covid.  After that a hard look at the the assets, the ships to determine if they fit in to CCL's view as to where the market is going.  Cash flow over the next few years has got to be high on their agenda given the debt that they are incurring and the cost of that debt.

Edited April 6, 2020 by iancal

[cbr663]

21 hours ago, iancal said:

The current 'take' rate on FCC's may indeed by 45 percent.  But that does not mean that this percentage will hold over the next few months as this scourge winds it way through.  We are only at the start of this.  Many cruises that are in reality cancelled have not been yet been officially cancelled by the cruise line.

 

As we move forward the FCC option my become less attractive as concerns grow over the financial stability of the cruise lines.  Whether that 45 percent is based on the number of cruises that have been cancelled to date  or the percentage of fare dollars  is another matter.

 

It is similar to saying bookings are up 9 percent YoY..  Perhaps they were....at a point in time.  These things can and do change rapidly.

The current take is indeed misleading.  Not only have many cancelled cruises not yet been cancelled by the cruise lines, many passengers planning to cancel their cruises have not yet done so.  Our cruise is in September and even though we know we are cancelling, we are waiting for the busyness to calm down before we actually cancel.

[Mickb]

I think that Costa, HAL, Cunard and Princess are the vulnerable lines. P&O Australia may also be sacrificed.
Personally, I would not consider setting foot on a cruise ship until a vaccine is available and even then would be concerned that I was protected against any variants of Covid 19 that may be down the line. That would seem to be a year away.
I think that it is questionable if all the big 3 survive and Carnival because of its size and it’s recent problems must be more vulnerable. Incidentally,  I saw the Saudis bought 8% today and they may be able to pump in more cash.

[Hlitner]

So today was a very interesting day from an investors perspective.  The Saudi's large investment in CCL, which will likely get them at least a seat on the board, is certainly a windfall for CCL and some very good PR news within the financial community.  The story that came out a few days ago about booking being up, year over year, sounds suspicious to me....especially in this era of fake news.  And even if true it is very misleading.  Many folks who have received FCCs related to recent cancellations have obviously booked future cruises without needing to put-up any cash deposit.  In fact, I have even done this myself with a large FCC we received from HAL after they cancelled our Westerdam cruise.   

 

Here is a link to an excellent new article which gets into some of the detail relating to CCL:

 

https://finance.yahoo.com/news/carnival-sells-8-percent-stake-173028049.html

 

Folks might note that, according to this article, future bookings are down with the CCL brands.

 

Hank