Carnival PLC (CUK) 0 Q0 法說會逐字稿

And welcome to our business update conference call. I'm Arnold Donald, President and CEO of Carnival Corporation & Plc. Today, I'm joined telephonically by our Chairman, Micky Arison; as well as David Bernstein, our Chief Financial Officer; and Beth Roberts, Senior Vice President, Investors 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 statements in today's press release.

For the past 8 months, we have dealt with the unprecedented impact of COVID-19 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 2 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 responsibility and therefore, our top priorities 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 members shipboard 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 the cycle. While business travel tends to shut down at time, 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 2/3 of our guests globally are repeat cruisers, a source of nearly 8 million guests annually. Moreover, our internal data suggests, on average, a repeat guest returns every 2-plus years. Being in pause status for 8 months, we have a backlog of past guests ready and waiting to cruise again. In addition, we have an active database of over 40 million to mine in the coming months as we strategically ramp up toward 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 with Costa Europe, which is nearly 80% Continental European sourced and soon with AIDA, which is roughly 95% German sourced.

Our other brands like P&O U.K., which is 98% British sourced; P&O Australia, which is more than 99% Australia/New Zealand sourced; and Carnival Cruise Line, which is 92% U.S. sourced, presents further opportunity. Additionally, the fact that these brands are characterized by ready access with drive to markets 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-cruise. Moreover and importantly, the combination of the phase 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-cruise, 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-cruise. 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 efforts.

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 brands. 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 18 ships leaving the fleet are our least efficient ships, we will benefit by a 2% reduction in unit cost. Our efforts to rightsize our shoreside operations will reduce our costs further as well as our continued focus on finding efficiencies across our ship operations. And of course, over time, we will achieve an additional structural benefit to unit costs as we deliver new, larger and more efficient ships.

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, in fact, substantially all of our 2019 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 newbuild capital, and more importantly, we have just 1 ship on order in fiscal '24 and just 1 ship on order in fiscal 2025. 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 billion 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 billion at-the-market program to be completed over time. It's just one of the tools in our tool box. We currently have the capacity to issue additional debt. We recently completed a converge 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-19. Now while we've dealt with many types of viruses previously and have had effective protocols in place onboard our ships and 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, Dr. Vivek Murthy, MD, MBA, author, former Vice Admiral in the Public Health Service Commissioned Corps and the 19th 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. Dr. Diamond was instrumental in developing a mouse model that is used extensively in the development of therapies and vaccines for COVID-19.

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. Dr. Lin is one of the leading members of the scientists to stop COVID-19, a group of esteemed researchers, physicians, and Nobel Prize winners from across our country. And Dr. Jewel Mullen, MD, MPH, Associate Dean for Health Equity, University of Texas at Austin, Dell Medical School. Dr. Mullen is an internist, epidemiologist, public health physician leader and the former Principal Deputy Assistant Secretary for Health in the U.S. 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-19 today. And we expect these protocols to evolve as society's understanding of COVID-19 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 shoreside 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 U.S. 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 2 ships, Deliziosa and Diadema. And soon a third, the flagship Smeralda, will be underway. Each of Costa 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 ship from another our brand, AIDA, carrying primarily German guests on cruises in the Mediterranean. And this will be followed by 2 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, on reduced 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 increase 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 3 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 2021 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 2021 booking trends. At this point in time, our cumulative advanced bookings for the second half of 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 2 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 activity. It is particularly reassuring to see that approximately 60% of the bookings taken during the first 3 weeks of September were new bookings with the remainder being FCC rebookings. 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 million, which was in line with our expectation. For the fourth quarter, we expected a monthly average rate to be approximately $530 million. This results in a monthly average rate of $650 million for the second half of 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 $1 billion flowing through accounts payable in the third quarter, partially offset by higher fourth quarter capital expenditures from 2 ship deliveries, 1 of which occurred last week, Enchanted Princess.

Our $530 million fourth quarter monthly average cash burn rate includes 4 items: first, $250 million per month of ongoing ship operating and administrative expenses; second, interest expense is expected to be approximately $120 million per month; third, capital expenditures forecasted to be approximately $130 million per month net of export credit financings, and this includes 2 ship deliveries and the receipt of other capital commitments contracted for prior to the pause in our guest operations; the fourth and final component is other working capital changes, which are forecast to be approximately $30 million per month.

Next, I'll provide a summary of our third quarter cash flows. We are currently in a solid liquidity position with $8.2 billion of cash on our balance sheet at the end of the third quarter. I'm happy to say that this is $1.3 billion 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 3 very well-received financing transactions with cumulative net proceeds of $4.7 billion. This was partially offset by 3 things: first, our total cash burn for the quarter was $2.3 billion, simply our monthly cash burn of $770 million per month x 3; second, $600 million, the majority of which was driven by scheduled debt maturities; and third, the decline in customer deposits of $0.5 billion from $2.9 billion at the end of the second quarter to $2.4 billion at the end of the third quarter, which was significantly less than the decline in the second quarter and was consistent with our previous expectations.

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 3 weeks ago, we announced an at-the-market equity offering program, more commonly called an ATM for up to $1 billion. To date, we have sold 23 million shares for net proceeds of over $350 million. So with plenty of available liquidity in hand, our focus has now shifted. With Costa's resumption of guest cruise operations and AIDA'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 sympathies to those around the globe who have suffered (inaudible) individually or whose loved ones have suffered with the virus.

Operator, please open the call to questions.

(Operator Instructions) And we have a question from Robin Farley with UBS.

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 U.K. 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, just given the success of the restart in Italy with yourselves and the other privately owned cruise lines having no cases now going on 2 or 3 months of cruises, can you give a little bit of color around what kind of ramp-up and booking volumes you're seeing for that brand? Like in other words, have you seen that as weeks have gone by and 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.

Robin, it's good to hear your voice. Look, first of all, with regards to the ramp-up in 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 in, but they have gone well.

And again, the bookings generally, as we've talked about for the second half of '21 have been strong. These close-in bookings that we have in Europe with limited itineraries are -- wouldn't be a bell weather for anything. But we have seen some increased interest even in those. I would say more broadly, and then we'll answer your question about the commercial paper, I'll have David do that.

I think more broadly, I know the question is on everybody's mind, so I'll just address it now. At this time, we have every reason to be optimistic that we will be sailing in the U.S. before the year-end. The reality is that the extension of the No Sail Order was only 30 days. It goes out to the -- through the October, which aligns with what the industry had voluntarily done on its own, is we've got multiple testing regimens becoming more available and more readily available. We have the successful sailings to date, us and others and in Europe with the enhanced protocols and operating procedures we put there. And as I mentioned, we've got the high guest satisfaction on those cruises.

And we've been collaborating here in the U.S. with all the various companies. Everybody has 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 the 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 U.S. before year-end.

With that, David, you want to respond on the commercial paper question? Thanks.

Sure. I do just want to add one other comment on Costa. I think that 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 U.K. commercial paper program is concerned, we continue to have conversations with the U.K. 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 of months as well.

Okay. And also thank you for the commentary about the broader restart. I didn't know how much you would address it. Maybe just -- I don't know if you'd add a clarification about -- is it your belief in your conversations with the CDC that they're kind of embracing any of the guidelines that are -- have been successful in Europe in a way that maybe wasn't reflected in the language of their extension statement? And then I'll…

I would say, I wouldn't try to venture and interpret the CDC's receptivity for very specific protocols. But what I will say is that CDC, they've got a daunting task, too. And so they're trying to mitigate the spread of this. And I think that is clear to them. We are, as an industry, totally committed to doing that as well. Our highest responsibility and our top priorities always are compliance, environmental protection and the health, safety and well-being of our guests, the people and the places we go to and of course, our crew and our shoreside personnel. And so 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 on all of the scientists. And of course, what we are putting forward as we work with them and with HHS and with the ports and the local authorities and so on and so forth everywhere and the various destinations we have to go to. That plethora of people we have to engage with, I think that we have every reason at this time to be optimistic.

Our next question is from Steve Wieczynski with Stifel.

So Arnold, I want to follow on to 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 changed 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 on the election, I think it's in everyone's best interest, no matter what your political leaning is, to have Americans working again and then have people go back to work and have livelihood and so on and so forth. 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 we get all those people that work in the ports back working again, the taxi drivers, all the people that are doing catering and providing provisions. And so I think there's momentum for that period because it's the right thing for the country, and it doesn't matter what political leaning people have. So in that regard, as an election year, I'm sure everyone wants to stand up and say, hey, we help bring back commerce and livelihood 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, we -- as I said, we have pent-up demand from people who are very anxious to cruise. And so we are not going to be able to bring all the ships back at once. The destinations are not going to all open at one time. And so it's going to be a staggered restart. So we're going to have limited capacity with pent-up demand. And I don't think demand is going to be a big issue in the short term. If we were bringing all the ships back at once, where you have a heavy dependency on new-to-cruise that with no marketing, because nobody has marketed for the past several months, that could be a challenge. But that is not going to be the case. And so we're not overly concerned about demand. We could see the bookings, we see the number of new bookings, not just future cruise credits from canceled cruises and all those are real positive indicators.

David, do you want to add any color?

Yes, sorry about that. Arnold, you broke up for a minute, I do apologize myself. Yes, I'm in a remote location. So yes, I lost a few -- a number of the words I say, I do apologize.

So 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 Line announced their recent change where they have canceled some cruises in November and December, but kept in Miami and Port Canaveral a couple of cruises open with the intention of restarting, as you said before at the end of the year. For a number of these, 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 phased resumption of cruising, we believe we'll be in fine shape as we move forward.

And then my second question is a bigger picture question. But if we look out a couple of years down the road, are 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? And yes, 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 newbuild order for a couple of years, I mean, as 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 20-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.

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 but I was on mute because I was trying to minimize interference when you were talking to David, I hear a lot of breakup.

But at any event, you're absolutely right. There's conditions we've never experienced before. We've exited or plan to exit 18 ships so that reduces, it helps our cost structure because they were least 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 had 1 order in '24 and 1 in '25, and we retained 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 have gotten back for a while to where we were before. And then not a lot of newbuilds for us in the '24, '25 time frame.

But assets that are really cash generative, so we can generate cash and pay down debt and get back to the credit rating, and we want to have and create shareholder value. Go ahead, David, if you want to make a comment.

Yes. No, I completely agree. I think Steve said it very well. I think our future is very bright. 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 has the highest level of satisfaction of all vacation alternatives. And this is a temporary blip, and we will be back. We'll bring the ships back in a phased manner, the pent-up demand and all of the other things that we're doing on board, I have great hopes that over the next -- as Steve indicated, over the next few years going out, the future looks very bright. And that's why we made the comment that we also expect that over time, with the resumption of cruise operations, we will be able to pay down debt and rebuild back the balance sheet into a strong investment-grade balance sheet once again.

Our next question is from Felicia Hendrix with Barclays.

Arnold, I never like to be the person to beat the dead horse, but I'll be that person right now. Just look, regarding your optimism that the industry is going to be sailing before the year-end in the U.S., 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 the CDC could extend that date even further. So just wondering why you don't think that would be the case.

I think the CDC obviously could. And the issues there remain around what's happening overall with the pandemic and the rate of spread in the U.S., community spread, it will be related also to the ongoing development and availability of various testing regimens, obviously, rapid testing, low-cost rapid testing, what would make life simpler for everyone. And that 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 completely. But at this time, 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 U.S. with the U.S. in a particular situation, which 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 shoreside activities.

And as I said in my comments, and of course, our aspiration is that the risk is less than they would experience in similar activity shoreside. And why could that even possibly be? Well, that already exists. For example, with norovirus, about 6% of the U.S. land-based population experiences norovirus in a given year, that's the estimate. And there's something like 0.007% on the cruise ship. And the reason is because we have to deal with viruses and stuff all the time, MERS, SARS, Ebola, norovirus, Zika. So we have medical facilities on board. We have medical screening, a lot of things, hand washing and hand sanitizers, 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 for 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. 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 medical screenings before you participate. So we're doing a lot of things that is not generally happening for the public as they move about.

So as long as people are moving about and engaging in activities, as long as there is some social gathering, then we're going to be in a good position to deliver less -- the same risk or less risk than people engaged in activities on shoreside. I hope that answered your question.

Yes. And David, just kind of switching to you, 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 '21, at least in early '21. So I was wondering if you could touch on that and also help us understand what kind of occupancy we need on a ship to be cash flow breakeven.

I know on 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 if 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 ships can be profitable once you initiate the sailing?

Sure. A whole bunch of questions in there. We -- as I had mentioned in my notes, we are working through a large number of different financial scenarios. But it would be premature for me to give you guidance as to the cash burn in various areas 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 we've taken a look at -- I gave you the fourth quarter, which was $530 million per month in the fourth quarter. And in a no revenue scenario, and I know we're not in no revenue scenario, but 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 2 ships being delivered just like the fourth quarter, but we do have a number of dry docks for various reasons, some regulatory, so that the number in a no revenue scenario would be slightly high.

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 probably something in the high 5s, 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, the guests on Costa 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 we'll judge and increase the occupancy accordingly over time to ensure social distancing.

And as far as the breakeven is concerned, we've said this a number of times. The breakeven on the various ships is from somewhere between 30% to 50% occupancy, depending on the size of the ship 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 Costa, 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 where are you now?

We're below 50% and working our way up.

Our next question is from the line of Brandt Montour with JPMorgan.

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, up 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 I think you've heard that at this time, we're not experiencing any significant discounting or anything for our future on bookings. And then that will be the comment I will share. David, I don't know if you had any other comment.

Yes. No, I'd just reiterate that. I mean, I did indicate that the booking curve in the back half of the year was at high end of historical range. And when you take into consideration, 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, Carnival Cruise Line had seen good demand recently when they made their actions.

I think once we get back to cruising, there's going to be an opportunity with all of the pent-up demand for us to take some positive price actions. And as we have -- 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.

I would just add that certainly, and once we restart the certainty of cruising. And once we -- because right now, people are booking without that certainty, right? And once we ramp up our marketing efforts, which, of course, have been very quieted during this period, that will also lend greater support 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. I 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?

I think several things. One, we're not sailing yet here in the U.S. And so the testing is continuing to evolve, availability of testing is evolving. But in many places in the U.S. now, there is access to PCR testing with turnaround times that would allow you to within 5 days or less, 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 show that you're in a category that we would allow to board the ship, subject to additional screenings and so on. So I think that's where it is today.

Also, as you know, there's rapid test 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 come clear over the next 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 getting COVID onboard from land. There's nothing that's going to preclude it completely. So the other part of the protocols, of course, is what do you do when there are symptoms onboard or there is even a confirmed case so that you're not disrupting everyone else's cruise, and we've done great measures in that to mitigate spread with physical distancing.

David's in the finance area, so he would say social distancing, but he's actually a pretty social guy. But else -- the rest of us in cruising, we talk about physical distancing because cruise is all about social 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 so -- and while at the same time, people are still having a good time and enjoying themselves and having a great vacation experience.

So 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 leaving the U.S., you're going to go somewhere. And wherever you go, they're going to have their protocols. And so we have to be compliant with everybody. So that will kind of determine in the end 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 is something that can be executed in the U.S. as well. Thank you for your question.

We have a question from Jamie Rollo with Morgan Stanley.

Yes. Just a question back on the U.S. return to service, please. If that No Sail Order does end later this month, is that enough of a green light for you to go ahead and cruise in Q4 in the U.S.? Or would you rather wait for formal approval by the CDC?

I'm sorry. Could you -- I missed the first part, it was a little garbled. I'm sorry, could you repeat your question?

Yes. If the CDC's No Sail Order does definitely end later this month, is that enough of a green light for the company to go ahead and sail in Q4 in the U.S.? Or would you rather wait until you got their formal approval? Clearly, their comments last week were still pretty cautious.

Yes. I think, again, I don't want to 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, serving the best interest of public health. And so we believe, based on what the scientists, the advisers we've had, some of those I mentioned, there have been scientists with other companies we've all collaborated and 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 shoreside, and we are optimistic and aspirational and believe we can get to less risk than what exists with similar activity shoreside.

In that context, then we feel we can sail and that we can handle issues that surface -- any issues that surface on the ships. So 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, et cetera. But that is in effect saying you're free to sail. 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 sail both in the U.S. before the end of the year based on all the things we've shared. Thank you, Jamie.

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 healthy sail protocols in the U.S. that might be 5 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 to customers at the ship? It does seems a lot safer than having it 5 days in advance.

Well, actually, there are different opinions amongst the scientists on whether you're better served 24 hours to 5 days before? Are you 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, if the people have symptoms and so on, on board. So you can mitigate spread in an event that there is a risk of COVID onboard or someone, a known risk or if someone actually has COVID. Those are the important things.

The details on at embarkation 24 -- there's different opinions about all of that. Those opinions are really looking at different algorithms and models that project very small percentage differences. Obviously, we want to be the best we can possibly be. But all of those protocols, whichever way you go, whether you use a European one or use the 24-hour before boarding, whichever one use are better than what exists in society at large.

Our next question is from James Hardiman with Wedbush Securities.

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 want to get in front of things we don't know yet because we have to do all of this, obviously, in full compliance with whatever the authorities involved would say we need to do. But I would say what exists today here in the U.S., a number of people -- a number of places you can be tested at no cost today. There are -- with PCR testing, there are 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 want to make it responsible, in the best interest of public health. And then there's hassle-free and facilitate it 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 vacation experience. And -- but in some cases, that cost may be 0 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 with. The rapid test, for example, allegedly, I guess, is $5 or something like that. So we'll see where we are. The most important thing is to make commitment that we will do universal testing.

And remember, early on, it's going to -- it's not going to be the entire fleet. It's going to be 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 of next year, I'm assuming there's a meaningful ramp at some point in the 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 cruise ship right now and then there's others who will be willing to go once the country is vaccinated to some degree, but maybe less interested if they still have to 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 it'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 time frame, the bookings tripled. So there's pent-up demand for cruising. That's point one.

We have a huge previous cruise store base and they are comfortable on cruise ships. They 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 and -- I'm hearing some background noise if they could go on mute. But the guest experience in Europe 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 we get through all the next year and into the following year, as we 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 going to be slowed, as we talked about before. We'll have to continue to do what we were doing before, which was convincing people who haven't cruised to cruise. Now keep in mind, pre-COVID, there were 0.5 billion people globally taking vacation, taking holidays. And there were 30 billion -- 30 million, excuse me, cruising. So 30 million out of 0.5 billion.

So we have lots of opportunity for this industry. Our ships were sailing full, as they always do. And so we have -- 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, the slow ramp-up, the pent-up demand and so on.

In terms of vaccine, I want to go through 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, if not this year, next year and hopefully, how many people will take the vaccine, how effective will those vaccines be. All that's built in the air. But clearly, the more tools, vaccines, therapies 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 of the news recently, that is available for people.

And so -- and then the society's ability to be 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 a mask at appropriate times, physical distancing at appropriate times. All those things 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? And then we'll probably have time for one more question. Yes, go ahead, David.

Yes. Just a couple of other quick things to add. I think it's fair to say that 2/3 of the FCCs are yet to be applied to bookings. I think people are -- 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 believe that we would start sailing again. So I think 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 we are very excited about that prospect.

We're also on top of that, 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 others of our -- other brands of ours, and that will lead to additional cruise bookings as well.

And we have a question from Assia Georgieva with Infinity Research.

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 are able to even further tweak years of somewhat higher capacity additions, such as the upcoming couple of years?

Thank you for your question. 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, et cetera. So there's been a natural pushback. And as I've mentioned in my comments, we actually only have 1 newbuild for '24 and 1 newbuild for '25 that contrast with 3 to 4 newbuilds across our 9 world-leading cruise line brands that we were experiencing in the years -- recent years prior to 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, puts us in a good capacity spot relative to the current dynamics. David, you want to add anything? David, anything you want to add? You good? Okay. Go ahead now.

Yes. Sorry. No, I did not 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 to 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 first months of 2021?

Sorry, can you repeat the first part of your question? I apologize.

Whether you can provide us with a range of the start-up costs per ship as they -- each ship will start resumption of service?

Sure. This is -- 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, there's -- and keep in mind that as you bring the ships back and meaning, you've already announced the resumption of cruising, you're also going to see an uptick in the advanced ticket deposits. And as a result of that, that advanced ticket deposits probably will pay for most, if not all, of any start-up costs or any costs getting the ship back into service.

Typically, with the new ship, I mean, it's tens of millions of dollars of negative working capital and advanced deposits before the ship enters service. So there should be plenty of liquidity to handle that. These costs aren't all that significant.

And yes, and since it's almost a quarter past the hour, I think, we'll cut it off for questions…

Yes. I was going to cut it off here. Yes. Thank you, David. Thank you, everyone. We really appreciate your continued interest. And just be assured, we are working hard as the entire industry to resume sailing 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 and ask you please disconnect your lines.