Carnival chief anticipates two tough years as cruise lines rebuild fleets

Carnival chief anticipates two tough years as cruise lines rebuild fleets
Alice Hancock March 14 2021 https://www.ft.com/content/80ffc63d-a88d-4d95-9252-ff7054747515

Arnold Donald admits sector will have to try harder to attract new customers

The chief executive of the world’s largest cruise company has said that shrinking its fleet due to the pandemic will slow Carnival’s full recovery until 2023, as cruise lines battle prolonged lockdowns and reputational fallout from on-board outbreaks.

Arnold Donald, chief executive of Carnival Corporation, told the Financial Times that the company’s full fleet might be sailing by the end of this year, but that having retired 19 of its 107 ships during the crisis, it would take longer to recover to its pre-crisis strength.

Even returning the entire fleet to the water this year was uncertain, he said: “[It] depends on so many variables, because every destination is going to have its own level of comfort and what regulations are going to be.”

Carnival found itself at the centre of the crisis in February last year, when coronavirus broke out on its Diamond Princess ship, which was quarantined off the coast of Japan with passengers and crew locked down on board.

Carnival continued running cruises nonetheless, with further outbreaks on several vessels including Diamond Princess’s sister ship Grand Princess, which set off on a cruise to Hawaii 16 days after the first cases on board Diamond Princess were confirmed.

Donald defended the company’s decision to continue sailing, arguing that little was known about the virus at that point. “The Diamond Princess was over in Asia, on the other side of the world . . . and even there people didn’t really understand the dynamics of what was happening.”

But, he admitted, the industry will now have to work harder to attract customers who have never been on a cruise holiday before.

Carnival is currently running a limited number of sailings in Europe and Asia, some of which go to sea and come back without stopping in ports.

The biggest hurdle to restarting once regulators give cruise companies their approval is returning its 90,000 staff to ships, Donald warned. It is a process that could take up to 45 days given differing international travel restrictions and quarantines, he said.

But the industry is desperate to resume operations and rebuild balance sheets that have been badly damaged by the crisis. Carnival has raised a total of $23.5bn in debt and equity since March last year to fund cash outgoings of some $600m a month.

Donald did not rule out further capital increases but said that the company had funding to see it through until 2022 even without any revenues coming in. It has also taken precautionary measures such as delaying new ships and cutting executive salaries and dividends.

In its latest trading update, Carnival revealed a $2.2bn net loss for the three months to the end of November and said that it had $9.5bn liquidity. It had $2.2bn in customer deposits for future holidays, the majority of which were credits for cancelled trips.

New bookings have largely been driven by regular customers, who on average take a trip once every two years, Donald said.

Regulators meanwhile have been hesitant about allowing the industry to restart. This week, the UK announced that cruises could resume in its waters from May 17, but in the US, the biggest market, authorities have yet to decide and are considering strict rules such as on board laboratory testing.

Donald said that his “only request” to authorities was that there were “no undue restrictions, constraints, disadvantages placed on the cruise industry versus the rest of travel and tourism”.

So far, four cruise operators have said passengers will have to have been vaccinated.

Donald said that such a decision would be premature for Carnival given the wide age range of its customers.

He added, however, that mandatory vaccination could be a policy for certain trips aimed at older customers.