The company intends to accelerate the disposal of ships in fiscal year 2020 that were previously expected to be sold in subsequent years. Carnival Corporation sold one ship in June 2020, has agreements in place for the disposal of five more ships, and preliminary agreements for three more, all of which are expected to leave the fleet within the next 90 days. These agreements are in addition to the sale of four ships, which was announced prior to fiscal year 2020. In total, the 13 ships expected to leave the fleet represent a reduction of nearly 9% of current capacity.
Carnival Corporation & plc President and CEO Arnold Donald stated, “We are transitioning our fleet and properly sizing our shore operations. We have already reduced operating costs and have also reduced capital expenditures over the next 18 months. We have secured more than $10 billion in additional liquidity to sustain another full year with flexibility. We have aggressively disposed of assets while actively deferring new ship deliveries. We are working diligently to resume operations while serving the best interests of public health through consultations with medical and scientific experts around the world.”.
Donald added: “We will emerge as a more efficient company to optimize cash generation, pay down debt, and position ourselves to return to investment-grade credit over time, providing strong returns to our shareholders.”.
Since pausing operations, the company has taken significant steps to preserve cash and secure additional financing to maximize its liquidity. While maintaining compliance, environmental protection, and safety, the company significantly reduced vessel operating expenses by transitioning vessels to the paused status. The company also reduced its administrative expenses and capital expenditures unrelated to new vessel construction and expects to reduce its capital expenditures by more than $600 million by 2020. In addition, since March, the company has raised more than $10 billion through financing transactions.
In addition, the company has $8.8 billion in committed export credits available to finance ship deliveries originally planned through 2023. Carnival Corporation & plc's Chief Financial and Accounting Officer, David Bernstein, noted: “By quickly recognizing the financial situation, we took swift action to improve our liquidity by reducing expenses and leveraging our strong balance sheet to complete several capital transactions.”.
The suspension of passenger operations continues to have significant negative effects on all aspects of the company's business. The longer the suspension of passenger operations, whether partial or complete, continues, the greater the impact on the company's liquidity and financial position will be. The company continues to expect losses for the second half of 2020.
The company's brands have announced various incentives and booking flexibilities to support customer confidence in making new reservations. These incentives vary by brand and sailing and include onboard credits and reduced or refundable deposits. In addition, the company is offering customers enhanced Future Cruise Credits (“FCCs”) or the choice of a cash refund.
Despite substantial reductions in marketing and sales expenses, the company continues to see demand for new bookings for 2021. As of May 31, 2020, customer deposits totaled $2.6 billion, the majority of which came from FCCs. $121 million of the customer deposit balance is for third-quarter travel and $353 million for fourth-quarter travel. The company continues to expect that the decline in the customer deposit balance in the second half of 2020, which is expected to occur in the third quarter, will be significantly less than the decline in the second quarter of 2020.
