The world is frozen by the coronavirus pandemic. People are locked up. The industry is closed. The final outcome of the cases is unknown. Optimistic economists, who forecast a sharp rebound in the third quarter last week, are starting to sober up. Without much progress in screening or treatment, normality may not return for a year or more. Certainly, nothing can keep businesses in a state of suspended activity for so long.
In this grim context, however, consider the admirable resilience of two groups: cruise lines and bond investors, both of whom believe that we may soon be floating on the high seas sipping piña coladas.
This week, Carnival Corporation completed a daring refinancing, raising $ 6 billion from investors. The cruiser’s chutzpah is impressive. Against fierce competition, Carnival stocks are among the worst performing in the world this year among companies valued at more than $ 1 billion, down 85%.
As Carnival acknowledged this week in the “recent developments” section of the bond offering prospectus, it has experienced some problems recently.
First, the coronavirus struck its ship Diamond Princess, which was then quarantined at a Japanese port; “A substantial proportion” of passengers were infected and some died. “Many” passengers and crew on his Grand Princess have also been infected and some have died. The infection has also spread to other Carnival ships, including Zaandam, Costa Luminosa, Ruby Princess, Costa Magica and Costa Favolosa. Some of these passengers also died and some of these sick ships were left at sea, the ports refusing to accept them.
Carnival has stopped all operations of its remaining fleet. He tries to encourage passengers whose trips have been canceled to forgo a refund and take a voucher for a future cruise, with generous credits for onboard entertainment. If enough passengers ask for money, the loss of cash could hasten the company’s demise. It is already at $ 1 billion a month.
To strengthen its finances, Carnival had to offer investors in debt an annual coupon of 11.5%. But it is remarkable that it has raised funds after the horrific experiences of so many passengers. As Norwegian rival Cruise Line sharply noted last month, “Coronavirus also has an impact on consumer sentiment regarding cruise travel in general.”
However, bond investors somehow bet that the impact will be temporary and that cruise enthusiasts will bring horror to mind. They may be right.
Thursday, during a commercial update, Saga, a company listed in the United Kingdom which offers cruises intended for the over 50s on its two ships, Spirit of Discovery and Spirit of Adventure, underlined the stoicism of its customers . Saga ships were 86% full in March, better than normal, even though the pandemic has engulfed more countries.
“They were very keen to continue sailing until the government effectively blocked the area,” said general manager Euan Sutherland. “Almost 60% of them immediately booked a cruise with us, so they did not request a refund, even in times of uncertainty. They said, “Okay, when can I book again? »»
Even for cruises scheduled for this fall and early next year, the Saga’s cabins are 80% full. As Mr. Sutherland said, “There is a huge appetite from our customers to come back there. “