Norwegian has ‘substantial doubt’ regarding its ability to continue in wake of coronavirus

Norwegian Cruise Line warned that its upcoming financial statements will carry a statement detailing “substantial doubt” about its ability to continue as a “going concern” in the wake of the coronavirus pandemic, another sign of how the crisis is affecting the cruise industry.

“The current, and uncertain future, impact of the COVID-19 outbreak, including its effect on the ability or desire of people to travel (including on cruises), is expected to continue to impact our results, operations, outlook, plans, goals, growth, reputation, cash flows, liquidity, demand for voyages and share price,” the company said in an SEC filing on Tuesday.

The company warned it may need to reorganize, possibly through bankruptcy proceedings.

This comes after the CDC extended a “no sail order” last month that it imposed in March to help quell the spread of the coronavirus. Carnival Cruise Line will resume some of its North American cruise service this summer starting Aug. 1.

According to its investor calendar, Norwegian is scheduled to release its monthly traffic report on Thursday and its first quarter results on May 28.

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Norwegian bookings for the rest of 2020 were “meaningfully lower” than last year, as of April 24.  Looking ahead to 2021, booking trends show that cruise demand is slightly down compared to the same time last year, with pricing down mid-single digits.

“During the temporary suspension of our cruise voyages, we expect to be required to pay cash refunds of advanced ticket sales with respect to a portion of our canceled cruises,” the filing said.

The company’s brands have instituted guest programs for canceled sailings, which include value-add future cruise credits in lieu of cash refunds. The company had $1.8 billion in advanced ticket sales as of March 31, though this includes previously announced voyage cancellations through June 30 that add up to about $850 million. In these cases, guests have the choice of a cruise credit or refund.

It has about $350 million from voyages scheduled for the rest of this year.

The company is taking a number of measures to mitigate the financial effects of the crisis, through cost saving and cash conservation measures.

These include plans to reduce ship operating costs (think food, fuel, port charges and reduced crew) and administrative expenses.

While the cruise industry has managed to disembark passengers from ships, it has struggled with how to remove thousands of crew members.

For Norwegian, marketing spending has seen a “significant reduction or deferral” for the first half of 2020 and there has been a company-wide hiring freeze. The company has introduced a shortened work week and reduced hours, resulting in a 20% salary reduction for shoreside workers and a pause in 401(k) match.

Norwegian told its employees on April 29 that about 20% of them would be furloughed, generally beginning on May 1 and expected to last through July 31. This date may change to earlier or later. Employees will still receive health benefits if they have them through the company. Those not furloughed  will have this shortened work week and reduced hours through at least June 22.

Cruise ship operators registered in foreign countries, as Norwegian is (it’s incorporated in Bermuda), were shut out of the CARES stimulus package signed into law by President Donald Trump in late March, which was intended to benefit U.S. companies only.

Another survival strategy may include seeking additional financing from the public and private markets through equity or debt securities.

Contributing: Chris Woodyard, Dawn Gilbertson

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