Why your favourite cruise line probably isn’t going out of business, despite the COVID shutdown
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Could the end be near for your favourite cruise line?
Given that most cruise companies haven’t operated a single voyage in nearly six months, and it’s unlikely that cruising will resume in a meaningful way anytime soon, it’s perfectly reasonable for you to worry about such a thing.
And, we do know you’re worrying. We read all those emails you send us.
But we have some good news for those of you with thousands of pounds tied up in bookings for future sailings: The three big, publicly traded companies that operate most of the biggest lines, including Royal Caribbean, Carnival Cruise Line, Norwegian Cruise Line and Princess Cruises, aren’t in imminent danger of sliding into bankruptcy — let alone collapsing completely.
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Indeed, all three of the companies — Carnival Corporation, Royal Caribbean Group and Norwegian Cruise Line Holdings — currently have enough cash on hand to muddle along for well over a year without a single dollar of revenue. Really. It sounds impossible. But it’s true.
The biggest of the three, Carnival Corporation, currently is burning through around $650 million per month without any ships sailing — a staggering sum. But as the company’s executives noted in July during a conference call with Wall Street analysts, Carnival Corporation had $7.6 billion in “liquidity” — cash and cash equivalents — as of 31 May, when it closed the books on its second quarter. It added another $2.6 billion in liquidity in June through a senior secured loan.
Also, Carnival Corporation has other levers to pull to raise even more money should there be a need, its executives have said.
“Additional cash conservation efforts, combined with future liquidity measures, will enable us to sustain ourselves beyond 12 months into late next year, even in a zero-revenue scenario”, Carnival Corporation president and CEO Arnold Donald said during the conference call.
Carnival Corporation is the parent company of four North American cruise brands that cruising fans know well: Carnival, Princess, Holland America and Seabourn. It also owns five overseas brands including the U.K.’s Cunard Line and Europe’s Costa Cruises.
If you’ve got a booking on any of them, you shouldn’t be too panicked — at least for now.
The two other big, publicly traded cruise companies are in a similar position.
During a conference call with Wall Street analysts in August, Royal Caribbean CFO Jason Liberty said the company was burning through about $250 to $290 million a month during the cruising shutdown but had liquidity of more than $4 billion.
Norwegian Cruise Line Holdings in August said it was burning through about $160 million a month but had liquidity of $2.8 billion.
In other words, the two companies had enough cash and cash equivalents on the books in August to survive nearly 14 and 18 months, respectively, with no cruising.
Royal Caribbean Group is the parent company of Royal Caribbean, Celebrity Cruises, Azamara and Silversea. Norwegian Cruise Line Holdings is the parent company of Norwegian Cruise Line, Regent Seven Seas Cruises and Oceania Cruises.
Add in Carnival Corporation’s nine brands, and that makes for 16 of the world’s biggest cruise lines that are in a reasonably solid financial position for now.
Of course, if the cruising shutdown continues into late next year or beyond, all bets are off. But the current consensus in the cruise world is that many vessels will be able to resume cruising long before then. Already, several lines have restarted limited sailings in some parts of the world.
Among the lines that have begun tiptoeing back into operation with a few sailings is Germany’s Tui Cruises, which Royal Caribbean partly owns through a joint venture. Carnival Corporation’s Costa Cruises is scheduled to resume limited operations in just a few days.
The massive liquidity positions of the three publicly traded cruise companies weren’t always in place. In the early days of the cruising shutdown, the companies only had enough cash on hand to survive a few months. But all the companies have raised huge sums of money in the financial markets in recent months through stock and bond sales, and loans.
Going into the coronavirus crisis, all three of the big cruise companies were in great financial condition with solid profits and lots of valuable assets — most notably their ships — that they could pledge as collateral when raising new capital.
“The strength of our balance sheet, our assets and our brands has been evident during this pandemic as we raised approximately $6.5 billion in new liquidity since we announced the suspension of our global cruise operations”, Royal Caribbean’s Liberty noted during the company’s August conference call with analysts.
Carnival Corporation has secured more than $10 billion in new capital since March.
If you have a booking on a cruise right now, chances are it’s with one of the three big companies mentioned above. Together, they account for around three-quarters of all cruises taken worldwide.
But there are other cruise lines out there, of course. And, unfortunately, the financial position of some of them is less clear.
Quite a few of the smaller cruise lines marketing to North Americans, including most river lines aimed at North Americans, are privately owned. Their financial positions are thus shielded from view. We’re talking about such lines as AmaWaterways, American Cruise Lines, UnCruise Adventures and Uniworld Boutique River Cruise Collection.
One big cruise line, MSC Cruises, also is privately owned, as is Viking.
None of these lines have indicated they are in financial trouble, and some of them have suggested that they, too, can withstand a cruising shutdown lasting many more months.
“We are a private, closely held company, which means we do not have to rush the decision to return to service”, Viking chairman Torstein Hagen said in August in a letter to customers.
Still, without a peek at the books of such companies, it’s impossible for The Points Guy or any other outside entity to offer enlightened commentary on their financial viability.
Alas, the cruising shutdown already has taken a toll among the ranks of small cruise operators. Five relatively minor cruise brands — two of them operating just one ship each — have filed for the equivalent of bankruptcy or shut down completely in recent months.
The biggest of the lines to shut down was Cruise & Maritime Voyages, a six-ship company that was the second-largest cruise brand in the U.K. While the company primarily drew British passengers, The Points Guy has heard from several U.S.-based cruisers who had given the line thousands of dollars for upcoming sailings and fear they may never get the money back.
Four of the five small lines that have shut down were Europe based. Only one U.S.-based cruise brand, tiny Blount Small Ships Adventures, has shut down since the coronavirus crisis began. The company operated three small vessels on U.S. rivers and coastal waterways.
One other cruise company that has experienced financial difficulties of late is Hong Kong-based Genting Hong Kong, the parent company of Crystal Cruises. The company in August disclosed that it had stopped making payments to creditors amidst a sharp loss of revenue due to the coronavirus crisis.
The announcement came two days after the company missed a 3.7 million euro payment of fees related to the construction of certain ships.
In a subsequent financial disclosure, the company said it had $397.5 million in cash and cash equivalents as of 30 June and had net operating cash outflows of $252.4 during the first six months of the year. The company did not disclose its current cash position.
The company has begun negotiations with its creditors to restructure its debt, which stood at nearly $3.4 billion at the end of July.
The Genting Hong Kong disclosure prompted Crystal Cruises to issue a statement in late August saying it was not going out of business.
Genting Hong Kong is the parent company of Crystal Cruises as well as two Asia-based cruise lines: Dream Cruises and Star Cruises. It also owns the Werften shipyards in Germany, where the first expedition ship for Crystal Cruises currently is under construction. In addition, it’s a joint venture partner in Resorts World Manila in the Philippines.
Genting Hong Kong this week sold its discotheque division, Zouk Group, for about $10 million as it sheds non-core assets in a bid to maintain liquidity.
Feature image courtesy of Royal Caribbean
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