Status Update

Oct 8, 2020

And welcome to our business update conference call. I'm Arnold Donald, president and CEO of Carnival Corporation and PLC. Today, I'm joined telephonically by our chairman, Mickey Arison, as well as David Bernstein, our chief financial officer, and Beth Roberts, Senior Vice President, Investor Relations. Thank you all for joining us this morning. Before I begin, please note that some of our remarks on this call will be forward looking. Therefore, I must refer you to the cautionary statement in today's press release. For the past eight months, we have dealt with the unprecedented impact of COVID-nineteen on our business, and we have aggressively managed throughout. In that time, we have come full circle from initiating a suspension in the early days of the pandemic to transitioning the fleet into pause status, rightsizing our organization, and now embarking on the phased resumption of guest operations underway in two of our world leading cruise brands, Costa in Italy and Aida in Germany. We are very excited to resume guest operations across our brands, and we are working hard to do so in a way that serves the best interest of public health. Our highest responsibilities and therefore our top priority are always, always compliance, environmental protection, and the health, safety, and well-being of our guests, the communities we touch, and our Carnival family, our team membership board and shoreside. We are taking aggressive actions, managing the balance sheet and reducing capacity to position us to weather this disruption and to emerge a leaner, more efficient company, reinforcing our industry leading position. As a leisure company, we believe we are well positioned within the travel sector. Because our industry is not reliant on business travel, we believe we will disproportionately benefit from the pent up demand for vacation experiences as compared with many others in the travel sector. Historically, our company has demonstrated proven resilience through cycles. While business travel tends to shut down at times, vacationers tend to travel through those challenges, and we've seen that time and again. After events, for example, like the global financial crisis, we believe we will capitalize on this demand given our extensive and loyal past guest base. Historically, approximately two thirds of our guests globally are repeat cruisers, a source of nearly 8,000,000 guests annually. Moreover, our internal data suggests on average a repeat guest returns every two plus years. Being in pause status for eight months, we have a backlog of past guests ready and waiting to cruise again. In addition, we have an active database of over 40,000,000 to mine in the coming months as we strategically ramp up to our full resumption of operations. Our company is uniquely positioned for a phased resumption in cruise travel given our multiple national brands, which can each be restarted independently. And as we said before, having national brands as a portion of our portfolio at this moment is clearly an asset. This has already proven to be instrumental in enabling us to resume cruising both in Italy, La Costa Europe, which is nearly 80% continental European source, and soon with Aida, which is roughly 95% German source. Our other brands like P and O UK, which is 98% British source, P and O Australia, which is more than 99% Australia New Zealand source, and Carnival Cruise Line, which is 92% US source, presents further opportunity. Additionally, the fact that these brands are characterized by ready access with drive to market and a prevalence of shorter duration cruises strengthens the potential for success in today's environment. Clearly, cruising in totality is not coming back all at once. As we are demonstrating with both Costa and Aida, we intend to initially resume operations with a small percentage of the fleet, which naturally will make us less reliant on new to crews. Moreover and importantly, the combination of the phased restart and the swift action we have taken to accelerate the exit of less efficient ships will reduce our capacity in the near term. Having reduced total available capacity by 12%, we believe we will be less reliant on new to crews even when we resume full operations globally. Never before have we been in this situation. In fact, in all prior cycles, we were actually growing capacity and needed to capture many more new to crews. Now we have not only seen tremendous support for our brands from our loyal guests who really miss their cruise vacations and intend to return, it is also very encouraging to see demand from new guests. With virtually no marketing effort, our book position for the second half of next year is at the higher end of historical ranges, a compelling indication of the fundamental strength in demand for our brand. Upon resuming service, we believe we are well positioned to optimize that latent demand for our leading brands around the world. Our strategic capacity reduction will also deliver a structurally lower cost base. Just by the fact that the 18 ships leaving the fleet are our least efficient ships, we will benefit by a 2% reduction in unit cost. Our efforts to right size our short side operations will reduce our cost further, as well as our continued focus on finding efficiencies across our ship operation. And of course, over time, we will achieve an additional structural benefit to unit cost as we deliver new, larger, and more efficient shifts. And while we will emerge a smaller and leaner entity, we have retained the most cash generating assets in our fleet, representing the lion's share and, in fact, substantially all of our 19 operating income. All of the actions we have taken are in keeping with our primary financial objectives going forward, to maximize cash generation. As we return to full operations, our strong cash flow will be the primary driver to return to investment grade credit over time and create greater shareholder value. The sale of less efficient ships will also result in less ongoing maintenance capital expenditures than we would otherwise have. And at the same time, we stretched out the delivery schedule, pushing out new bill capital, and more importantly, we have just one shift on order in fiscal twenty four and just one ship on order in fiscal twenty twenty five. That will significantly reduce capital expenditures during those years, enabling us to pay down debt. As the industry leader, maintaining a strong balance sheet has historically been a key strength for our company and a differentiator for our shareholders. Even now, we retain the lowest leverage in our industry and are opportunistically strengthening our balance sheet as we begin our return to service, which will position us well to create meaningful shareholder value over time. As you know, we took swift action to secure sufficient capital to provide a financial runway to withstand an extended pause in guest operations. Because of our strong balance sheet, we were able to raise the vast majority of that nearly $12,000,000,000 of capital on a secured basis, minimizing dilution. And while it was certainly financially painful for a company that had always managed an investment grade credit rating, bearing the cost of the capital raise was prudent to provide us the opportunity to create value over time. While we have raised capital mainly through debt this year, given the recent momentum coming into the relaunch of our fleet, we saw a good opportunity to strengthen our capital structure through an equity raise, announcing a $1,000,000,000 at the market program to be completed over time. It's just one of the twos in our toolbox. We currently have the capacity to issue additional debt. We recently completed a convert flush which optimistically improved our balance sheet and our leverage. We also have the potential to monetize noncore assets to reduce the debt burden. Of course, cash generation upon returning to service will be the primary driver of deleveraging over time. For several months, we've worked to develop new and enhanced protocols and procedures based on the best available science to specifically address the risks associated with COVID-nineteen. Now while we've dealt with many types of viruses previously, and have had effective protocols in place onboard our ships, including screening measures, medical centers, and sanitation procedures, which prevent and reduce spread once brought on board from land. As evidenced by the global shutdown, this virus presents its own challenges. And we have worked diligently and have engaged leading medical and science experts, including among others, Doctor. Vivek Murti, MD, MBA, author, former vice admiral in the Public Health Service Commission Corps, and the nineteenth surgeon general of The United States. Michael Diamond, MD, PhD, Herbert S. Gasser Professor of Medicine, Molecular Microbiology, Pathology and Immunology, and Associate Director, Center for Human Immunology and Immunotherapy Programs, Washington University School of Medicine in St. Louis. Doctor. Diamond was instrumental in developing a mouse model that is used extensively in the development of therapies and vaccines for COVID-nineteen. Michael Lin, MD PhD associate professor of neurobiology, bioengineering, and chemical and systems biology, and principal investigator, the Lin Lab, Stanford University School of Medicine. Doctor Linn is one of the leading members of the Scientist to Stop COVID nineteen, a group of esteemed researchers, physicians, and Nobel Prize winners from across our country. And doctor Jewel Mullen, MD Miles per hour, associate dean for health equity, University of Texas at Austin, Dell Medical School. Doctor Mullen is an internist, epidemiologist, public health physician leader, and the former principal deputy assistant secretary for health in the US Department of Health and Human Services. While at HHS, she also served as the acting assistant secretary for health and acting director of the National Vaccine Program Office. These experts and others have and are helping to determine what enhancements to our existing protocols and operating procedures will best serve the interest of public health. They have informed our protocols and procedures which are established based on the science, technology, medical treatment, data, and overall understanding of COVID-nineteen today. We expect these protocols to evolve as society's understanding of COVID-nineteen strengthens. We are working so that our guests will not incur any greater risk versus engaging in similar experiences on land. And of course, our aspiration is to achieve less risk than exposure to similar shore side activity. Our company and the cruise industry has a track record of doing just that with norovirus, for example. We are in active discussions around the world with appropriate authorities and agencies to resume guest operations when appropriate, including here in The US. In each region, we will only sail when we feel we can honor our commitment to operate in the best interest of public health. And when we sail, we will certainly fulfill each specific region's requirements. And we have achieved a significant milestone. Our first brand to return to operations, as I've mentioned, was Costa in Italy. Costa has successfully completed the reintroduction of two ships, the Lisiossa and Via Dema, and soon a third, the flagship Smiralda will be underway. Each of Costa's ships are offering week long cruises, departing from multiple different regional home ports and accessing a variety of different drive to markets. For these initial voyages, we have chosen to sail with low occupancy levels, enabling us to gain valuable experience with our enhanced safety protocol. And we received high satisfaction scores from our valued guests who have appreciated the changes that we've implemented. In the coming days, we will mark another milestone as we embark our first shift from another of our brands, Aida, carrying primarily German guests on cruises in the Mediterranean, and this will be followed by two more Aida ships later this year. Again, we are very excited about the resumption of cruise in Europe, and we look forward to what we hope will be a phased resumption around the world. Throughout these challenging times, we have received tremendous support. So sincerely, thank you to our guests. Thank you to our dedicated members of the Carnival family, both Shipboard and Shoreside. Thank you to our trade partners, the travel agent professionals, and to our other stakeholders for their ongoing support. And especially thank you to our investors for their confidence in us and in our future. In summary, we remain committed to continue to deliver extraordinary vacation experience to our guests and value to our shareholders. By accelerating the sale of less efficient ships, we will emerge a leaner, more efficient company. We will capitalize on pent up demand capacity and structurally lower our cost base while retaining our most cash generating assets and opportunistically strengthening the balance sheet. By stretching out the delivery schedule and pausing new ship orders, we increased the opportunity to pay down debt. As we return to full operations, our strong cash flow will provide our path back to an investment grade credit rating over time and create increasing shareholder value. With that, I will turn the call over to David. Thank you, Arnold. It feels great to be transitioning into a new phase as we have successfully resumed some of our guest cruise operations. Our current financial action plan has three main paths, optimize the resumption of guest cruise operations, preserve cash, and opportunistically strengthen our balance sheet while improving our overall liquidity position. I'll start today with an update on our second half twenty twenty one booking trend. Then I'll provide a summary of our monthly average cash burn rate and finish up with our third quarter cash flows as well as some insights into our liquidity position. Turning to our second half twenty twenty one booking trend. At this point in time, our cumulative advanced bookings for the 2021 are at the higher end of the historical range at prices that are down in the mid single digits, including the negative yield impact of future cruise credits or more commonly known as FCCs and onboard credit supply. Directionally, if you exclude the negative impact of these two items, pricing would be in line with prior year. Our book position is very encouraging given that we had essentially suspended all advertising and promotional activities. It is particularly reassuring to see that approximately 60% of the bookings taken during the first three weeks of September were new bookings with the remainder being FCC rebooking. It is also promising to see that approximately 45% of the 2021 book position are guests that are new to brand with the remaining 55% of guests being brand loyalists, which is just a little higher than the norm. Now let's look at our monthly average cash burn rate. For the third quarter, our monthly average cash burn rate was $770,000,000, which was in line with our expectation. For the fourth quarter, we expected a monthly average rate to be approximately $530,000,000 This results in a monthly average rate of $650,000,000 for the 2020 as previously discussed on our last business update conference call. The monthly average burn rate in the third quarter is higher than the fourth quarter expectation driven by the timing of guest refund payments of over a billion dollars flowing to accounts payable in the third quarter, partially offset by higher fourth quarter capital expenditures from two ship deliveries, one of which occurred last week in Chanted Princess. Our $530,000,000 fourth quarter monthly average cash burn rate includes four items. First, 250 per month of ongoing ship operating and administrative expenses. Second, interest expense is expected to be approximately 120,000,000 per month. Third, capital expenditures forecasted to be approximately 130,000,000 per month net of export credit financing, and this includes two ship deliveries and the receipt of other capital commitments contracted for prior to the pause in our guest operation. The fourth and final component is other working capital changes, which are forecast to be approximately 30,000,000 per month. Next, I'll provide a summary of our third quarter cash flows. We are currently in a solid liquidity position with 8,200,000,000.0 of cash on our balance sheet at the end of the third quarter. I'm happy to say that this is 1,300,000,000 more cash than we had on the balance sheet at the end of the second quarter. During the third quarter, we added to our liquidity position by completing three very well received financing transactions with cumulative net proceeds of $4,700,000,000 This was partially offset by three things. First, our total cash burn for the quarter was 2,300,000,000.0, simply our monthly cash burn, 770,000,000 per month times three. Second, 600,000,000, the majority of which was driven by scheduled debt maturities. And third, the decline in customer deposits of a half a billion dollars from 2,900,000,000.0 at the end of the second quarter to 2,400,000,000.0 at the end of the third quarter, which was significantly less than the decline in the second quarter and was consistent with our previous expectation. Finally, some insights into our liquidity position. Since the pause in our guest cruise operations earlier this year, we have raised liquidity mainly through debt transactions. Given the recent momentum coming into the relaunch of our fleet, we saw this as a good opportunity to improve our capital structure through an equity raise. So three weeks ago, we announced an the market equity offering program, more commonly called an ATM for up to a billion dollars. To date, we have sold 23,000,000 shares for net proceeds of over $350,000,000. So with plenty of available liquidity in hand, our focus has now shifted. With Costa's resumption of guest cruise operations and IEDA's recent announcement of their resumption as well, we are looking at a variety of financial models where we resume guest operations in a phased manner with specific brands and ships returning to service over time to provide our guests with enjoyable vacation experiences and our company with positive cash flow and additional liquidity. And now I'll turn the call back over to Arnold. Thank you, David. Before we open it up to questions, I'd like to extend my personal deepest sympathy to those around the globe who have suffered individually or whose loved ones have suffered with the virus. Operator, please open the call to questions. Thank you. Once again, that's one, four, to register for a question. One moment please for the first question. And we have a question from Robin Farley with UBS. Please go ahead. Your line is open. Great. Thank you. I have a question and also a small housekeeping item. Just the housekeeping item, first. I wonder if you could just update, you didn't mention The UK, commercial paper facility in your sort of liquidity arsenal. So I'm just wondering if that is still available or if it's available but you're not intending to use it. So just to clarify that. And then my bigger question is, you know, just given the success of the restart in Italy with yourselves and the other privately owned cruise line, you know, having no cases, now going on, you know, two or three months of cruises, can you give a little bit of color around, you know, what kind of ramp up in booking volumes you're seeing for that brand? Like in other words, have you seen that as, you know, weeks have gone by and, you know, multiple ships being in the market and kind of showing the success of all the protocols? It would be helpful. I don't know if you can quantify in any way, but it would be great to kind of hear about what that has meant for demand. Thank you. Hey, good morning, Robin. It's good to hear your voice. Look, first of all, with regards to the ramp up Europe, we're very pleased with the experience in Europe at this point and are especially pleased that our guests are pleased with the experience in Europe. What those early sailings have been about, of course, is not occupancy or anything. We purposefully have the occupancy low as we get used to the new procedures and the protocols and we test to see how things are going. But they have gone well. And again, the bookings generally as we've talked about for the 2021 have been strong. These close in bookings that we have in Europe with limited itineraries wouldn't be a bellwether for anything. But we have seen, you know, some increased interest even in those. I would say more broadly, they will answer your question about commercial paper, I'll have David do that. I think more broadly, I know the question in everybody's mind, so I'll just address it now. At this time, we have every reason to be optimistic that we will be selling in The US before the year end. The reality is that the extension, the no sale order, was only thirty days. It goes out through DOPtober, which aligns with what the industry had voluntarily done on its own. We've got multiple testing regimens becoming more available and more readily available. We have the successful sailings today, us and others in Europe with the enhanced protocols and operating procedures we put there. As I mentioned, we've got the high guest satisfaction on those cruises. And we've been collaborating here in The US with all the various companies. Everybody's been informed by global medical experts and scientists. Everybody's had their own bevy of these folks and fortunately, the science is starting to align. So we all got very similar recommendations and industry has been able to align around protocols and operating procedures that we'll begin to look at, subject of course, to approval from the various authorities that have to weigh in on all of this. And so we have, at this time, every reason to be optimistic, that we will be sailing in The US, before year end. With that, David, you wanna respond on the commercial paper question? Thanks. Sure. I do just wanna add one other comment on Costa. I think, you know, Costa just resumed advertising a week ago with their call to action program. So keep that in mind because early in the process, we were limiting occupancy. So we do expect to see a different booking pattern as we go forward with the advertising. As far as The UK commercial paper program is concerned, we continue to have conversations with The UK. We're in discussions with them to get this started again. And keep in mind, we're also working with Germany and Italy to complete those loans over the next couple months as well. Okay. Thank you. And and, also thank you for the the commentary about the the broader restart. I I I didn't know how much you would address it. Maybe just I I don't know if you'd add clarification about, you know, is it, your belief in your conversations with the CDC that they're kind of embracing any of the guidelines that, you know, have been successful in Europe in a way that maybe wasn't reflected in the language of their extension statement? And then I'll touch on I would say I wouldn't try to venture and interpret, you know, the CDC's receptivity for very specific protocols. But what I will say is that the CDC, they've got a daunting task too. And so they're trying to mitigate the spread of this and I think that it's clear to them. We are as an industry, totally committed to doing that as well. You know, our highest responsibilities and our top priorities always are compliance, environmental protection, and the health, safety, and well-being of our guests, of the people and the places we go to, and of course our crew and our shore side personnel. And so, you know, we are totally committed as a company and as an industry to serving the best interest of public health. And so I do feel that what's going on in Europe has some influence, what the scientists are saying has a tremendous amount of influence, all of the scientists. And of course, what we are putting forward as we work with them and with HHS and with ports and the local authorities and so on and so forth everywhere and the various destinations we have to go to. You know, that plethora of people we have to engage with. I think that we have every reason at this time to be optimistic. Thank you, thanks. Thank you. Our next question is from Steve Wieczynski with Stifel. Please go ahead, your line's open. Hey, good morning, guys. So Arnold, I want to follow on to that the last piece about the potential to start operations here in North America by the end of the year. And I guess, I'm not sure the right way to ask this, but does the upcoming election change anything with you guys and the industry's ability to return eventually to service here in North America? And then if you guys are allowed to start sailing here before year end, I guess the question is, I mean, what do you think customer demand would look like at this point, given we could be in the height of normal flu season, plus obviously all the overhangs from the kind of COVID scare? I think on the first one, election. I think it's in everyone's best interest no matter what your political meaning is, to have Americans working again and then have people, you know, go back to work and have livelihood and and so on and so forth. So so I think, the election, if anything, obviously, maybe lend some momentum to saying, hey, how can we work with this industry to make sure, you know, we get all all those people that work in the ports back working again, the taxi drivers, you know, all the people that are doing catering and providing provisions. And so I I think there's, you know, momentum for that period because it's the right thing for the country and and it doesn't matter what political leaning people have. So in that regard, it's an election year. I'm sure everyone wanna stand up and say, hey. We we helped bring back, you know, commerce and livelihood and and and means of quality of life for people. So that would be my answer to that one. And then the second question in terms of demand. Just keep in mind, as I said, we have pent up demand from people who are very you know, to cruise. And so we are not gonna be able to bring all the ships back at once. The destinations are not gonna all open at one time. And so it's gonna be a staggered restart. So we're gonna have limited capacity with pent up demand, and I don't think, you know, demand is gonna be a big issue in in the short term. If we were bringing all the ships back at once, where you have a heavy dependency on new to crews, that with no marketing because nobody's marketed for the past several months. You know, that that could be a challenge, but but that is not gonna be the case. And so we're we're not overly concerned about demand. We see the bookings. We see, you know, the number of new bookings, not just future cruise credits from canceled cruises. And all those are real positive indicators. David, you wanna add any color? David, you may be on mute. Yeah, sorry about that. Arnold, you broke up for a minute, I do apologize. My cell yeah. Service I'm I'm in a remote location. So, yeah, I I lost a few a number of the words there. I do apologize. Okay. So the the only thing I would add, and I'm not sure if you had made this comment, was simply the fact that when Carnival Cruise Lines announced the recent change where they can't they canceled some cruises in November, December, but kept in Miami and Port Canaveral a couple of cruises open with the intention of restarting, as you said, before the end of the year. For a number of days, we did see a spike in bookings, which is just a demonstration of the demand that's out there as you talked about the pent up demand. So and with the ramp, the phase stop, resumption of cruising, we believe we'll be in fine shape as we move forward. Thanks for that. And then my second question is a bigger picture question. But if we look out a couple years down the road, we incorrect to think that the cruise industry could be set up to be really in an outstanding position once the world kind of goes back to a more normal environment? I guess what I mean by that is with so much capacity being removed at this point and the fact we probably aren't going to see a new build order for a couple years, I mean, we get out to '24, '25, '26, I mean, the industry itself should be set up for its lowest capacity growth rate that it's probably going to witness for the last twenty plus years. And that should really allow you guys to push price. And I hope all that makes sense, but would like to hear your thoughts there. Arnold, I can't hear you. Oh, I'm sorry. Thank you. I have it. David, I got it. Thank you. I'm sorry. You're absolutely right that the I was talking, it it was on mute because I trying was to minimize interference when you were talking, David. Heard a lot of breakup. But in any event, you're absolutely right. It's conditions we've never experienced before. You know, we've exited, or we plan to exit 18 ships. So that reduces, it helps our cost structure because they were lease efficient ships, but it reduces capacity. Yes, we're bringing on new ships. We just took delivery of Enchanted Princess, great delivery. But as you know and as I pointed out, we only have one order in '24 and one in '25. And we retain our cash generative assets. And so the bottom line is there will be somewhat constrained capacity, dramatically constrained initially, and then over time still constrained because we would've gotten back for a while to where we were before. And then not a lot of new bills for us in the 2425 timeframe, but assets that are really cash generative so we can generate cash and pay down debt and get back to the credit rating that we wanna have and create shareholder value. Go ahead, David, if you wanna make a comment. Yeah. No. I completely agree. I I think Steve said it very well. I I think our future's very bright. You know, if you think about it, and we said this on the last conference call as well, I mean, people love to cruise. The cruise vacation is the highest level of satisfaction of all vacation alternatives. Alternatives. And and this is a temporary blip, and we will be back. We'll bring the shift back in a phased manner, the pent up demand, and all of the other things that we're doing on board. You know, I I have great hopes that, over the next Steve indicated over the next few years going out, the future looks very bright. And that's why, you know, we made the comment that we also expect that over time, with the resumption of cruise operations, we will be able to to pay down debt and rebuild back the balance sheet into a strong investment grade balance sheet once again. Okay. Great. Thanks, guys. Really appreciate it. Hey. Thanks for your question. Appreciate it. Our next question is from Felicia Hendrix with Barclays. Please go ahead. Your line is open. Thank you. Good morning. Good Felicia. Good morning. I never like to be the person to beat the dead horse, but I'll be that person right now. Just, you know, look, regarding your optimism that the industry is going to be failing before the year end, in The US, I agree and I think a lot of the information kind of points or kind of supports your optimism, but there is, I think some nervousness among the investment community that, you know, the CDC could extend that date even further. So just wondering, you know, why you don't think that would be the case. I think the CDC, you know, obviously could and the issues there remain around what's happening overall with the pandemic and the rate of spread in The US, community spread. It'll be related also to the ongoing development and availability of various testing regimens. Obviously, rapid testing, low cost rapid testing would make life simpler for everyone and we seem to be very much on the path for availability for that. So there are a lot of things that could come into play, and of course, what's happening elsewhere in the world, which right now is positive and we have no reason to believe it won't continue to be positive, but so we can't predict the future future completely, but at this time, you know, everything is pointing, in the right direction. And we feel confident that, we have protocols and operating procedures as demonstrated in Europe and which would be enhanced in many ways also here in The US for The US in a particular situation, is still being resolved and worked out, that we'll be able to cruise where there is no greater risk to the activities that people engage on a cruise ship than they would on similar shore side activities. As I said in my comments, and of course our aspiration is that the risk is less than they would experience in similar activity short side. And why could that even possibly be? Well it already exists. Example, with Norovirus, about six percent of The US land based population experiences Norovirus in a given year, that's the estimates, and it's something like point zero zero seven percent on a cruise ship. And the reason is because we have to deal with viruses and stuff all the time. Know, MERS, SARS, Ebola, norovirus, Zika. So we have medical facilities on board, we have medical screening, you know, a lot of things, washing and hand sanitizer, those things have been present on cruise ships for a long time. So I think we're positioned well. We have to see. I can't guarantee, obviously, but we have every reason to be optimistic, and it's ultimately the right thing to do, to get people back to work, to give people a chance, you know, for the vacation experience of a lifetime in a safe way relative to similar experiences they would engage in on land. Keep in mind, what we're doing in Europe is not happening anywhere else. You know, hotels aren't doing universal testing of guests before they walk into a hotel. Airlines aren't doing universal testing of airlines. Resorts aren't doing that. Amusement parks aren't doing that. They don't all have, you know, medical screenings before, you know, you participate. So we're doing a lot of things that, you know, it's not generally happening for the public as they move about. So as long as people are moving about and engaging in activities, you know, as long as there is some social gathering, then, you know, we're gonna be in a good position to deliver less, you know, the same risk or less risk than people engaging in activities on the short side. I hope that answered your question. Yes, thank you. David, just kind of switching to you, you know, we've gotten a lot of questions from investors about what the initial rollout and that early transition period where you still will likely be burning cash. So people are mainly wondering what the cash burn could look like in 2021, at least in early twenty twenty one. So I was wondering if you could touch on that and also help us understand what kind of occupancy you need on a ship to cash flow breakeven. I know in the last call we talked about 50%. So is that a good benchmark to use? And do you think there'll be guidelines that prescribe occupancy levels or will it be left to the operator? Maybe kind of you could talk about what you're doing in Europe as a benchmark and just generally how you're thinking about the rollout from a cash flow perspective and how soon the shifts can be profitable once you initiate the scaling? Thanks. Sure. A whole bunch of questions in there. You know, we as I had mentioned, in my notes, we are working through a a large number of different financial scenarios, but it it would be premature for me to give you, you know, guidance as to the cash burn, you know, in various years because there's a lot of uncertainty as to the ramp up and how exactly when each ship will start. But I think it's fair to say, you know, we've taken a look at I gave you the fourth quarter, which was 530,000,000 per month in the fourth quarter. And and in a no revenue scenario and I know we're not in no revenue scenario, but we we did do some calculations. In a no revenue scenario, the cash burn would probably be just slightly higher than that. In the first half of the year, we also have two ships being delivered just like the fourth quarter, but we do have a a number of dry docks for various reasons, some regulatory, so that the the number in a no revenue scenario would be slightly higher. But we do expect over time, as we build the occupancy on Costa and Aida and other brands to begin to generate positive cash flow from those sailings and reduce that cash burn, from, you know, something in the high fives down to a much smaller number and, hopefully, over time, eventually turn positive. And so as far as occupancy is concerned, I think we've said this before. Our intention is to start with occupancy onboard our vessels below 50% to test the protocols, ensure that the guests are satisfied. As Arnold mentioned, you know, the guests on cost and the sailings have given us excellent guest satisfaction rating. And so over time, once we know we got things right, our intention is to increase the occupancy level. Costa right now, there is in Italy and Germany, there is no occupancy limit. They are making sure that they have social distancing and will judge and and increase the occupancy accordingly over time to ensure social distancing. And and as far as the breakeven is concerned, we've said this a number of times. The breakeven on the various shifts is from somewhere between 30 to 50% occupancy depending on the size of the shift and, of course, the yields that we, the prices that we receive as well. I think that answers all the questions. Did I miss anything? No. You got it. Just cost. Are you sailing below 50% now? In the beginning, yes. We did say that, we would start below 50% with Costa to practice the protocol and work our way up. And and where are you now? We're below 50 and working our way up. Okay. Sure. Okay. Thank you. Thank you. Our next question is from the line of Brandt Montour with JPMorgan. Please go ahead. Your line is open. Hi, good morning everyone. Thanks for taking my questions. Good morning. Good morning. And I appreciate the color on pricing and it's obviously the adjusted pricing metrics you gave a flat year over year is very reassuring. But to the extent that some of us might be seeing a little bit of dispersion under the surface for the industry overall, I was wondering if you could just comment on how you feel the state of the price integrity looking out to next year is holding up away from you and for the industry overall. We would only comment on our own business, obviously, and and and I think you've you've you've heard that that, you know, at at at this time, we're not experiencing any significant discounting or anything for for our future bookings, and and then that would be the comment I will share. David, I don't know if you had any other color. Yeah. No. I just reiterate that. I mean, I did indicate that the booking curve in the back half of the year was at high end of the historical range. And when you take into consideration the f you know, if you actually take out the FCCs and the onboard credits applied, we indicated that pricing was in line with the prior year. And so pricing is very good. And I think that once the we get back to cruising, as I indicated before, you know, Carnival Cruise Line had seen, you know, good demand recently actions. I think once we get back to cruising, there's gonna be an opportunity with all of the pent up demand for us to take some positive price actions. And as we have the as Arnold talked about, phased resumption of cruising, the limited capacity, we see and the high level of satisfaction that we've been able to achieve on the guest side, with Costa, I think that all bodes well for us going forward in the future. Excellent. And I I would just add that the no. I would just add that the certainty and once we restart, you know, the certainty of cruising. And once we, because right now, people are booking without that certainty. Certainty. Right? And and once we ramp up our marketing efforts, which, of course, have been very quieted during this period, you know, that will also lend, you know, greater support, you know, for good pricing going forward. Got it. And one more on that certainty, if I may. I apologize, but I wanted to ask about the industry's sort of recent commitment to 100% testing. And Arnold, you mentioned that this was a factor or could be a factor with the CDC. Guess, what do your plans in The U. S. Entail for testing specifically, and so what are the current issues and status around procurement there? You know, think, you know, several things. One, we're not failing yet here in The US. And so the testing is continuing to evolve, availability of testing is evolving. But in many places in The US now, you know, there is access to, you know, PCR testing with turnaround times that would allow you to, within five days or less, you know, take a test and be cleared in many cases free of charge and have that evidence from a certified lab that you are COVID free and be in a position then to, you know, show that you're in a category that we would allow to board a ship subject to additional, you know, screenings and so on. So I think that's where it is today. Also, as you know, there's rapid tests at a very low cost. And so when those will be available to the general public and how much remains to be seen, but that will all, you know, come clear over the next, you know, months coming here before, more than likely before the end of the year. So that would give additional capability. As you know, in Europe, we're doing a combination of PCR and antigen testing and so on. And it's working out quite well. And it's not a major barrier at this point for the testing for someone to consider cruising. But it is an effective tool to minimize letting COVID on board from land. There's nothing that's gonna preclude it completely. So the other part of the protocols, of course, is what do you do when there are symptoms on board or there is even a confirmed case so that you're not disrupting everyone else's crews and we've done great measures in that to mitigate spread with physical distancing. You know, Dave is in the finance area, so he would say social distancing, but he's actually a pretty social guy. But the rest of us in the cruise center talk about physical distancing because cruise is all about social, you know, exchange. So physical distancing, along with mask wearing and all the proper things you need to do if you're around a communicable disease. And and while at the same time people are still having a good time and enjoying themselves and having a great vacation experience. So, you know, we'll see how it evolves. There's so many different test regimens out there now, and we'll finalize, as we get closer and of course be in compliance with every region. Because it's not just about, you know, leaving The US, you're gonna go somewhere. And wherever you go, they're gonna have their protocols. And so, you know, we have to be in compliance with everybody. So that'll kinda determine in the end, you know, the the final makeup. But the point is, there are more tools in the toolbox now. We've demonstrated an ability to execute universal testing in Europe, and we have every right, every reason to believe that it is the right thing to do, but also it's something that can be executed in The US as well. Thank you for your question. Thanks for those thoughts. We have a question from Jamie Rollo with Morgan Stanley. Please go ahead. Your line is open. Thank you. Yes, just a question back on The U. S. Return to service, please. That no sale does end, later this month, is that enough of the green light for you to go ahead and cruise in Q4 in The US, or would you rather wait for formal approval by the CDC? I'm sorry. Could you I I missed the first part. It was a little garbled. I'm sorry. Could you repeat your question? If the c if the CDC's no sale order does definitely end later this month, is that enough of a green light for the company to go ahead and serve in Q4 in The US, or would you rather wait until you got their formal approval? Clearly, their comments last week were still pretty cautious. Yeah, I think, again, I don't wanna try to interpret the rationale behind certain comments made by the CDC, but what I would simply say is we will only sail when we feel we are honoring, you know, serving the best interest of public health. And so we believe based on what the scientists, the advisors we've had, some of those I mentioned, There have been scientists with other companies. We've all collaborated, medical experts. And we believe that as we are in Europe, we have a way to go forward that will reduce the risk to no worse than if you were short side, and we are optimistic and aspirational and believe we can get to less risk than what exists, so similar activity short side. In that context, then we feel we could sail, and that we can handle issues that surface, any issues that surface on the ships. So, you know, if there is a no sail order, de facto, that is approval, okay? They may have advice or warnings for certain people with underlying conditions, which we would as well, you know what I mean, etcetera. But that is, in effect, you know, saying you're free to sell. So we'll see what happens, but at this time, as I mentioned, we just have every reason to be optimistic that we will be able to sell both in The US before the end of the year based on all the things we've shared. Thank you, Jamie. Thank you, and then a sort of follow-up from that, if I may. As you say, in Europe, the protocols have been quite strict, particularly Costa. I think it's having testing of guests when they get to the ship. You mentioned the LT SAILED protocols in The U. S. That might be five days before. Is there an issue with getting the testing equipment? Can you not replicate that in The U. S. And have the actual test for customers at the ship? It just seems a lot safer than having it five days in advance. Well, actually, there are differing opinions amongst the scientists on whether you're better served twenty four hours to five days before or you're better served at embarkation. The point being, what we'll have regardless where all that ends up is universal testing, which doesn't really exist in the rest of society. And so that's the point. There will be universal testing. There will be ways to follow on, you know, if people have symptoms and so on onboard, so you can mitigate spread in the event that there's a risk of COVID onboard or someone, a known risk, or someone actually has COVID. Those are the important things. The details on at embarkation, 20 four, there's different, you know, opinions about all of that. Those opinions are really looking at different algorithms and models that project, you know, very small percentage differences. Obviously, we wanna be the best we possibly be, but all of those protocols, whichever way you go, whether you use a European one or you use one twenty four hours before boarding, whichever one you use, are better than what exists in society at large. Great, thank you very much. Thank you. Our next question is from James Hardiman with Wedbush Securities. Please go ahead, your line is open. Hey, good morning. Thanks for taking my call. Just a clarification on the last conversation surrounding testing. Are you guys going to be bearing that cost or is it the consumer? And if it's you guys, should we be thinking about some material cost overhang as a result of testing all your customers? Again, I don't wanna get in front of things we don't know yet because we have to do all this, obviously, in full compliance with whatever the authorities involved say we need to do. But I would say what exists today here in The US, a number of people, you know, a number of places you can be tested at no cost today. There are, with PCR testing. There are, you know, still avenues where people would pay for testing and so on. And at some point, some of this will determine where we are and when we're doing it. But we wanna make it responsible in the best interest of public health, and then it's hassle free and facilitated while being responsible for our guests. So we're not taking a hard line on that. In any event, it's a cost that will be borne, and it will obviously go into the overall cost of a vacation experience, but in some cases that cost may be zero, or it could be whatever the going rate for a PCR test is today, or with the different testing regimens that are coming along now, it could drop to very low cost depending on what's available when. The Abbott test, for example, allegedly, I guess, is $5 or something like that. So we'll see where we are. The most important thing is the commitment that we will do universal testing. And remember, early on, it's gonna not it's not gonna be the entire fleet. It's gonna be, you know, some ships going to some destinations with a lot of pent up demand, and it won't be, it shouldn't be a major challenge to fill those ships whatever the testing regimen ends up being. Really helpful. And then with regards to the booking trends that you guys shared for the second half of next year, really encouraging. I'm trying to figure out how excited we should be getting about that. I guess as we look at the ramp in bookings, and I'm assuming it just doesn't immediately get there in July, I'm assuming there's a meaningful ramp at some point in first half. What is the well, first of all, could you share with us sort of the timing of that ramp in bookings, and what does that tell you, if anything, about how consumers are thinking about the timetable with regards to a vaccine? I'm assuming it's safe to say that there's people that are willing to go on a cruise ship right now, and then there's others who will be willing to go once the country is vaccinated to some degree, but may be less interested if they still have wear a mask and do the testing and do the social distancing. So maybe just walk us through what the data says about how consumers are thinking about that recovery and how you think about relaxing your protocols as the vaccine gets introduced next year. Okay, so there's a lot there, but I'll start at a high level and then David can add some detailed color. So at the highest level, what I see in demand at this point in time is a lot of pent up demand for cruise. People are booking, we canceled some cruises on Carnival the other day, and the cruises we had remaining in that timeframe, you know, the bookings tripled. So there's pent up demand for cruising. That's point one. We have a huge previous crew store base, and they are comfortable on cruise ships. Understand the medical screening, the medical centers, the physical distancing capability on these large ships. They get it and they understand it. And as I said, the guest experience, I'm hearing some background noise if they could go on mute, but the guest experience in your has been high, the satisfaction has been high. So those are all positive indicators, so we feel very good about the demand. Over time, as you get through all of next year and into the following year, as you get all the fleet back up and going, and so on and so forth, we will, again, need to be convincing new to cruise people as we bring in additional capacity in future years, although that capacity is gonna be slowed as we talked about before. We'll have to continue to do what we were doing before, which was convincing people who hadn't cruised to cruise. Now keep in mind, pre COVID, there were half a billion people globally taking vacation, taking holidays, there and were 30,000,000,000, 30,000,000, excuse me, cruising. So 30,000,000 out of a half a billion. So we have lots of opportunity for this industry. Our ships were sailing full, they always do, and we are not overly concerned about demand now or through the first part of next year, okay, at this point in time. Just based on the dynamics of everything, a slow ramp up, the pent up demand and so on. In terms of the vaccine, I don't wanna go to just the general thoughts around the vaccine. Obviously it's a psychological comfort for a lot of people that there would be a vaccine. Who knows exactly when they'll be available sometime, you know, if not this year or next year, hopefully. How many people will take the vaccine? How effective will those vaccines be? All that's still in the air. But clearly, the more tools, vaccines, therapies, you know, that mitigate the onset of symptoms that are really problematic for people and long term effects for people who get COVID, therapies that address those things. There's continuing work on that, and there have been some obviously, I heard about some in the news recently, that is available for people. And so, and then the society's ability to be self responsible, self responsible in terms of paying attention and doing the basic things you need to do to make certain that you're minimizing the risk that you'll get the infection yourself, washing your hands, not touching your face, wearing masks at appropriate times, physical distancing at appropriate times, all those things, you know, all bode for an environment where we'll be able to fill our ships, as they come back on stream. So that would be my comment, David. Sure. And then I'll probably have one more question. Yeah. Go ahead, Just a couple other quick things to add. You know, I I think that's fair to say that two thirds of the FCCs are yet to been be applied to bookings. I think people are you know, people took the FCCs, and they're waiting to make their holiday plans. We've seen a number of incidents, as I mentioned before, where we saw a spike in bookings when people believed that we would start sailing again. So I I think, you know, if you look at our bookings, the uncertainty has caused the closer in booking trends to be different than the further out booking trends. Because when we look at the back half of next year where people are much more confident that we'll be sailing. We're seeing good booking trends. And I think as we open up and we get approvals, as you mentioned before, and the uncertainty begins to go away, for all the reasons we previously stated, I think the booking trends will pick up, and and we are very excited about that prospect. Plus, on top of that, you know, Costa, has shown that their safety and their protocols has afforded the guests an excellent holiday experience. And I do believe over time, people around the world will see that with other, other others of our other brands of ours, and that will lead to additional cruise bookings as well. Very helpful. Thanks, guys, and good luck. And we have a question from Ezha Giorgiova with Infinity Research. Please go ahead. Your line is open. Good morning. Thank you for letting me sneak in. A couple of quick questions. After you have done a pretty drastic and I think important reduction in capacity, is there the ability to possibly push ships, newbuilds further back into the future sort of through a domino effect, so you're able to even further tweak years of somewhat higher capacity additions such as the upcoming couple of years? Thank you for your question. You know, there's been obviously a natural pushback in the scheduling as yards had to deal in their locales with community spread of COVID and workers were not available to work in the yards for periods of time, etcetera. So it's been a natural pushback. And as I mentioned in my comments, we actually only have one new bill for '24 and one new bill for '25. That contrasts with, you know, three to four new bills across our nine Whirlini Cruise Line brands that we were experiencing, in the years recent years prior to, the onset of the pandemic. So, there is that natural kind of delay and slowdown that you're referencing. And I think that that combined with the fact that we've exited a number of less efficient vessels, and we'll complete that process here over the next few months, you know, puts us in a good capacity spot relative to the current dynamics. David, Yeah, before we add I'm sorry. David, anything you wanted to add? You good? Okay, go ahead now. Yeah, sorry about that. Didn't have anything to add. I think you said it well. And, David, maybe for you, just a quick follow-up. Can you give us a range of the start up cost per ship just so we know how to work with those over time as the resumption of service goes through the 2021? Sorry. Can you repeat the first part of your question? I apologize. Whether you can provide us with a range of the startup costs per ship as they reach each ship with a certain resumption of service? Sure. You know, this is as as we bring ships back from pause, I mean, this is not that much different than a new ship entering service. Where you have to bring the crew back. We have to order food. You know, if there's and and keep in mind that as you bring the ships back, and meaning you've already announced the resumption of cruising, you're also gonna see an uptick in the advanced ticket deposits. And as a result of that, that that advanced ticket deposits, you know, probably will pay for most, if not all, of any sort of costs or any cost getting the ship back into service. Typically, with the new ship, I mean, it's tens of millions of dollars of, you know, negative working capital and advanced deposits before the ship enters service. So there's there should be plenty of liquidity to handle that. These costs aren't all that significant. And and I think yeah. And since it's almost a quarter past the hour, I think we'll cut you off for questions. Was gonna cut it off here. Yeah. Yeah. Thank you, David. Hey. Thank you, everyone. We really appreciate your continued interest, and just be assured we are working hard, as is the entire industry, to resume selling globally, and, we are definitely, feeling good about the future prospects. Thank you very much. That concludes the call for today. We thank you for your participation. Asu, please disconnect your line.