The world's "Big Three" cruise majors could take the rare step of putting ships into lay-up as they weather the coronavirus storm.
UBS analyst Robin Farley that it was rare for Carnival Corp, Norwegian Cruise Line or Royal Caribbean to take ships off the water to deal with short-term shocks, but the Covid-19 coronavirus might be different.
"We would not be surprised to see some lines choose to lay up perhaps 10-20% of some fleets this year to give time for demand to recover over the longer term," Farley wrote.
Cruise lines have taken a battering in recent weeks.
As the coronavirus has spread, dozens of countries have closed ports to cruise ships, passengers have cancelled and, over the weekend, Carnival, Norwegian and Royal Caribbean all announced they would temporarily cease operations.
The three have lost billions in equity value off their 52-week highs.
So far, both Carnival and Norwegian have borrowed to shore up their financial positions, with Carnival taking $3bn out of a credit facility and Norwegian borrowing $675m against one of its ships.
Farley said Norwegian had $1.8bn in available liquidity, including the $675m loan.
In her note, Farley assumed revenue would decline 60%, at which Norwegian would be "roughly EBITDA neutral". The company could delay 75% of its progress payments and lower discretionary capital expenditures by as much as $300m, leaving $1.5bn of revolver capacity to pay the remainder, including roughly $75m in debt maturities and $260m in interest cost.
In the same scenario — a 60% revenue dip, plus decreased capital expenditures — Carnival's recent borrowing would still be roughly $1.3bn short of the funding necessary to cover its capital calls this year. The Arnold Donald-led company would still have $1.9bn in progress payments and other capital expenditures, $1.6bn in debt maturities, about $345m in first quarter dividends and roughly $250m in interest costs.
Farley did say Carnival would likely have the ability to raise more funds, given their lower levels of debt, however.
Royal Caribbean, meanwhile, could lower its discretionary capital expenditures by $1.4bn, leaving $2.4bn of revolver capacity $600m short of funding its capital calls.
The company would still have $1.3bn in progress payments, $1.2bn in debt maturities, $160m in first quarter dividends and $400m in interest cost.
Farley noted Royal Caribbean's investment-grade rating makes additional financing a possibility.
After the close Monday, Norwegian finished down $0.16, or 1.4%, to $10.94. Royal Caribbean fell $2.39, or 7.4%, to $29.94.
Carnival fell $3.01, or 17%, to $14.57.
