The world’s largest cruise shipping company has announced plans to install air lubrication technology on at least 20% of its fleet.
Carnival Corporation says the Air Lubrication Systems (ALS), which are already in use aboard four ships, will be added to five more ships this year with plans to install the technology on at least 10 more ships across a majority of its brands through 2027.
The hull drag-reducing technology is expected to reduce fuel consumption and carbon emissions by about 5% per ship, according to the company.
ALS technology, which first saw service within the Carnival Corporation fleet in 2016 with the introduction of AIDAprima, generates a cushion of air bubbles to lubricate the flat bottom of a ship’s hull, reducing friction between the ship and surrounding water, resulting in savings in energy and fuel consumption across a wide speed range.
Carnival Corporation is currently installing the Silverstream® System ALS on five more ships, including two ships in 2022 for its Princess Cruises and P&O Cruises (UK) brands. In addition, the company is planning at least 10 more installations for existing and newbuild ships across more than half of its cruise line brands, and it expects continued expansion of the ALS program. The expansion plans build on the success of four systems currently operating on ships from its AIDA Cruises and Princess Cruises brands.
“The installation of air lubrication technology is another example of our ongoing efforts to drive energy efficiency and reduce fuel consumption and emissions throughout our fleet,” said Bill Burke, chief maritime officer for Carnival Corporation. “We look forward to expanding the ALS program and furthering our long-term sustainability strategy to continually invest in a broad range of energy reduction initiatives, which has included over $350 million invested in energy efficiency improvements since 2016.”
Carnival Corporation has committed to reducing carbon emission intensity by 20% from its 2019 baseline by 2030 and has set an aspiration to achieve net carbon-neutral ship operations by 2050.
Carnival Corporation has been making strategic changes to its Italian brand, Costa Cruises, as a result of the pandemic and now more fleet moves may be coming.
In Carnival’s third-quarter earnings release, the company said it was evaluating further moves for Costa.
“Given Costa Cruises’ significant presence in Asia, particularly China, which remains closed to cruising, the brand continues to evaluate deployment options and fleet optimization alternatives beyond the previously announced transfers of Costa Luminosa to Carnival Cruise Line as well as Costa Venezia and Costa Firenze to the COSTA by CARNIVAL concept,” the company said.
The Costa Luminosa recently transferred to Carnival Cruise Line, while the Venezia will move to the Costa by Carnival concept and sail from New York in 2023, followed by the Firenze moving to Costa by Carnival to sail from the U.S. West Coast in 2024.
The Costa Magica remains out of service, as does the Costa Serena, which had been positioned in Asia year-round.
Two other Costa ships, the Atlantica and Costa Mediterranea transferred prior to the pandemic to Carnival’s joint venture with China State Shipbuilding Corporation and remain out of service with Costa branding.
Carnival Corporation has provided its third quarter 2022 business update.
Key Highlights:
U.S. GAAP net loss of $770 million and an adjusted net loss of $688 million for the third quarter of 2022.
Adjusted EBITDA for the third quarter of 2022 was over $300 million, turning positive for the first time since the resumption of guest cruise operations and marking a significant milestone.
Revenue increased by nearly 80% in the third quarter of 2022 compared to second quarter 2022, reflecting continued sequential improvement.
Occupancy in the third quarter of 2022 increased 15 percentage points from the prior quarter.
Since the announcement of the company’s relaxed protocols in mid-August, aligning the company towards land-based vacation alternatives, booking volumes for all future sailings are considerably higher than strong 2019 levels.
The third quarter of 2022 ended with $7.4 billion of liquidity, including cash and borrowings available under the company’s revolving credit facility.
Carnival Corporation & plc’s Chief Executive Officer Josh Weinstein commented: “The well-being of the Caribbean region, Florida and other states still in the path of Hurricane Ian is very important to us. On behalf of Carnival Corporation, I would like to extend our deepest concern for those affected by Hurricane Ian and Fiona, some of whom are our own employees, travel agent partners, destination communities and loyal guests.”
Weinstein noted: “During our third quarter our business continued its positive trajectory, achieving over $300 million of adjusted EBITDA and reaching nearly 90% occupancy on our August sailings. We are continuing to close the gap to 2019 as we progress through the year, building occupancy on higher capacity and lower unit costs.”
Weinstein continued: “Since announcing the relaxation of our protocols last month, we have seen a meaningful improvement in booking volumes and are now running considerably ahead of strong 2019 levels. We expect to further capitalize on this momentum with renewed efforts to generate demand. We are focused on delivering significant revenue growth over the long-term while taking advantage of near-term tactics to quickly capture price and bookings in the interim.”
Weinstein added: “With a transformed fleet, an unmatched portfolio of well-recognized brands, unparalleled scale in an under-penetrated industry and an incredibly talented global team, we have the ability to drive durable revenue growth through pricing improvements over time. We believe this will provide significant free cash flow and accelerate our return to strong profitability and investment grade credit ratings.”
Third Quarter 2022 Results and Statistical Information
Revenue increased by nearly 80% in the third quarter of 2022 compared to the second quarter of 2022, reflecting continued sequential improvement. For the cruise segments, revenue per passenger cruise day (“PCD”) for the third quarter of 2022 decreased compared to a strong 2019.
Onboard and other revenue per PCD for the third quarter of 2022 increased significantly compared to a strong 2019.
PCDs for the third quarter of 2022 were 17.7 million, representing a 55% increase from the prior quarter.
Occupancy in the third quarter of 2022 increased 15 percentage points from the prior quarter.
Available lower berth days (“ALBD”) for the third quarter of 2022 were 21.0 million, which represents 92% of total fleet capacity, increasing from 74% in the second quarter of 2022.
Adjusted EBITDA for the third quarter of 2022 was over $300 million, turning positive for the first time since the resumption of guest cruise operations and marking a significant milestone.
Total customer deposits were $4.8 billion as of August 31, 2022, approaching $4.9 billion as of August 31, 2019, which was a record third quarter. New bookings during the third quarter of 2022 primarily offset the historical third quarter seasonal decline in customer deposits (a $0.3 billion decline in the third quarter of 2022 compared to a $1.1 billion decline for the same period in 2019).
Guest Cruise Operations
Weinstein said: “With our return to guest cruise operations essentially complete, we are now relentlessly focused on driving top line growth and returning to strong profitability. We believe the strategic changes we have already made to our fleet resulting in a younger and more efficient fleet, coupled with our recent portfolio optimization efforts including COSTA by CARNIVAL, will provide strong tailwinds along our path to profitability.”
As of September 30, 2022, approximately 95 per cent of the company’s capacity is serving guests. The company expects eight of its nine brands will have their entire fleet serving guests by the end of the fourth quarter of 2022.
According to a press release, given Costa Cruises’ significant presence in Asia, particularly China, which remains closed to cruising, the brand continues to evaluate deployment options and fleet optimization alternatives beyond the previously announced transfers of Costa Luminosa to Carnival Cruise Line as well as Costa Venezia and Costa Firenze to the COSTA by CARNIVAL concept.
The company’s brands continue to responsibly relax their COVID-19-related protocols aligning the company towards land-based vacation alternatives.
This generally includes greatly reduced or eliminated testing requirements and significantly broadens the demand pool by welcoming unvaccinated guests. These relaxed protocols generally became effective throughout September and are subject to local destination regulations.
The company saw a continuation of its 2022 sequential improvement in adjusted cruise costs excluding fuel per ALBD in constant currency in the third quarter of 2022 and said it expects to see continued improvement in the fourth quarter of 2022 with a low double-digit increase as compared to the fourth quarter of 2019 driven in part by higher advertising expense to drive 2023 revenue.
While the company’s year-to-date adjusted cruise costs excluding fuel per ALBD during 2022 have benefited from the sale of smaller-less efficient ships and the delivery of larger-more efficient ships, this benefit is offset by a portion of its fleet being in pause status for part of the year, restart related expenses, an increase in the number of dry dock days, the cost of maintaining enhanced health and safety protocols, inflation and supply chain disruptions. The company anticipates that many of these costs and expenses will end in 2022.
Given the seasonality of its business, the company expects a net loss and breakeven to slightly negative adjusted EBITDA for the fourth quarter ending November 30, 2022. Having achieved over $300 million in adjusted EBITDA in the third quarter, the company anticipates positive adjusted EBITDA for the second half of 2022 despite the seasonality of its business and the increasing investment in advertising to drive yields in 2023. Additionally, on a year-over-year basis, the company expects an improvement in adjusted EBITDA and occupancy, with occupancy returning to historical levels during 2023.
Bookings
Booking volumes for all future sailings during the third quarter of 2022 saw a continuation of the accelerated booking volumes during the second quarter of 2022, closing the gap to strong 2019 levels. Since the announcement of the company’s relaxed protocols in mid-August, aligning the company towards land-based vacation alternatives, booking volumes for all future sailings are considerably higher than strong 2019 levels. (The company’s current booking trends will be compared to booking trends for 2019 sailings as it is the most recent full year of guest cruise operations.)
Cumulative advance bookings for the fourth quarter of 2022 are below the historical range and at lower prices, primarily due to future cruise credits (“FCCs”), as compared to 2019 sailings.
Cumulative advance bookings for the full year 2023 are slightly above the historical average and at considerably higher prices, as compared to 2019 sailings, normalized for FCCs.
Financing and Capital Activity
During the third quarter of 2022, the company completed a $1.15 billion public equity offering of its common stock. The company expects to use the net proceeds from the offering for general corporate purposes, which could include addressing 2023 debt maturities. In addition, the company invested $0.5 billion in capital expenditures, repaid $0.4 billion of debt principal and incurred $0.4 billion of interest expense, net during the quarter. The company ended the third quarter of 2022 with $7.4 billion of liquidity, including cash and borrowings available under the revolving credit facility.
Additionally, the company exchanged $339 million in aggregate principal amount of its outstanding Convertible Senior Notes due 2023 (the “Existing Notes”) for the same amount of Convertible Senior Notes due 2024, extending maturities at the existing rate of 5.75%. The New Notes have the same initial conversion price as the Existing Notes, representing no dilution to shareholders at scheduled maturity versus the Existing Notes, the same coupon and no upfront cost to the company.
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