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Thursday, May 14, 2020 9:54:39 PM
Video Transcript
JULIE HYMAN: Cruise line operator Norwegian came out with its earnings today. The shares were up about 8/10 of 1%, but they've been bouncing around quite a bit. The company reported a $211 million loss. That works out to $0.99 a share. But also, the company had some, of course, one-time costs-- so 1.10 billion dollars in expense-related adjustments.
The company does say that people are booking cruises. And it's not just people who are rebooking canceled cruises. So that looks like what's responsible for a little bit of a recovery in the shares. Carnival, by the way-- its rival-- announcing that it is going to be doing some layoffs and furloughs, although it did not give specific details on that.
Let's talk Norwegian first and bring in James Hardiman. He is Wedbush Securities Leisure & Travel Analyst. He's joining us from Shaker Heights, Ohio. James, so when you look at the Norwegian numbers, it's really interesting here, too, because Norwegian was in trouble financially just a couple weeks ago and was able to raise capital through a debt sale. Are things really looking substantially better for the likes of Norwegian, or is there still a really hard road to come here?
JAMES HARDIMAN: Well, I think it's both, to answer your question. I mean, a couple of weeks ago, it was a little bit unclear what their runway was in terms of surviving this pandemic, right-- a significant monthly cash burn that they had to deal with. And it limited capital. Now, what they were able to do last week was secure significant financing through not only multiple debt offerings but an equity offering.
And so, by our math, even in the scenario where the industry is completely shut down and there's no revenues coming in the door, we think they can last through the end of 2021, which is a big deal. Now, that's a very different question than when things are, in fact, going to go back to normal. So they can answer the question of whether or not they're going to survive this. But the questions going forward are a lot more difficult. And obviously, the first question is how do they reopen their business.
ADAM SHAPIRO: James, it's Adam-- good to see you. What I was thinking is, it would be easier to take a cruise to Put-in-Bay just outside of Cleveland than it would be to get on one of these big ocean liners. I mean, the regulations that could be coming down the pipe-- we know that nursing homes were centers of COVID outbreak.
The cruise ships-- I mean, before this, it was the different-- the what is it, the norovirus-- that people would get. How do the cruise lines get a business model in place where people feel safe going on them and also going to have to deal with countries that aren't going to let them in perhaps?
JAMES HARDIMAN: Yeah, it's going to be a real challenge. And "stay tuned" is the short answer to that question. You know, the first order of business is getting the CDC to lift their no-sail order, which, as of today, goes through the end of June. So if you talk to any of these cruise companies, they're targeting an early-July resumption of sailings.
That is very different, however, from saying that consumers are going to jump back in. And I think it's safe to say that it's going to take a while before we go back to normal. I think most investors continue to be surprised by how many consumers are suggesting that they would be interested in getting on a cruise, not just long-term but fairly near-term. But I think it's going to be years before we get back to the volumes that we saw, you know, '18, '19 time frame.
- James, what do you think it would take for people to feel more comfortable on cruises again? I mean, you know, as Adam said, the norovirus was already an issue. And we had seen some ships that were stuck out at sea, dealing with those kinds of outbreaks. You know, people can fly somewhere a lot faster, get to a resort a lot faster.
They can drive there. You don't have to worry about dealing with being stuck in small, cramped quarters. And you know, I mean, frankly, people died on these ships of COVID-19. What's going to get people to want to be on one?
JAMES HARDIMAN: Well, long-term, clearly, what I think is required for the industry to go back to normality is a virus or at least a treatment now. I don't think anybody thinks that that's going to happen within the next six to nine months at an absolute minimum. It's that in-between phase which is a head-scratcher.
I think everybody that follows this industry-- I think to some extent, you know, they're going to put in unprecedented safety and sanitation standards onboard these cruise ships, number one. Number two, I think they're likely to set sail at something well south of their typical occupancy of 100%, right, in an effort to practice social distancing onboard.
Those are the two easy answers. Now, the difficult answer, I think, that is ultimately going to need to be communicated to first the CDC and other port authorities but then also to consumers tumors is, what exactly happens if somebody contracted the virus onboard, right? A, how do they prevent other people on board from contracting the virus? And B, how can they assure the people onboard that they're not going to get stuck at sea, which we saw time and time again when the outbreak first began?
Those are two questions that I haven't heard definitively answered thus far. I think to a large degree, it's going to depend on getting port authorities and ultimately these different localities and countries comfortable with the idea that people are going to contract the virus. And you still have to let us into the country. So I think there's probably more work to be done on that front-- making that happen and then communicating that to consumers.
JULIE HYMAN: James, maybe I'm just bitter because the one time I took a cruise, I contracted some kind of norovirus, which they're also notorious for. The sanitary changes that you're talking about-- the health changes you're talking about-- could they potentially be permanent for the cruise lines because they have had health issues like norovirus pretty frequently in the past? And if so, that seems like a pretty expensive proposition.
JAMES HARDIMAN: Yeah, I mean, I think they're likely to be permanent. Look, I think so much of what we do in terms of sanitation and just personal hygiene and personal interactions with other human beings is going to change, I think, coming out of this. And that's, you know, separate and distinct from the cruise industry. But given that they were ground zero in a lot of ways as we entered this social distancing phase, you know, I think they're going to be pioneers of how we act coming out of it.
So yeah, I'd be hard-pressed to see them institute certain standards, right, within the next few months and then pull back those standards at some point in the future. And yes, to answer your question, those new protocols are not free. They're going to add to the costs that these guys are going to need to incur.
I think those costs probably pale in comparison to having no revenues for a series of months. And ultimately, the second quarter-- you know, the entire industry is going to go without a single penny of revenue. So I think those costs will be well worth it. But yeah, I do think they'll be meaningful.
JULIE HYMAN: Yeah, if they convince people to get back on their ships. James, thank you so much for your perspective. James Hardiman is Wedbush Securities Leisure & Travel Analyst-- appreciate it.
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