Yahoo Finance Presents: Arnold Donald

On this episode of Yahoo Finance Presents, Carnival Corporation CEO Arnold Donald spoke with Yahoo Finance's Brian Sozzi about the economic impacts of COVID-19 on the cruise industry and the future of the company.

Video Transcript

[MUSIC PLAYING]

BRIAN SOZZI: I'm here with Arnold Donald, CEO of Carnival Corporation. Arnold, thanks for taking some time. Appreciate it.

ARNOLD DONALD: Good to be with you, Brian. Thank you.

BRIAN SOZZI: It's been a busy time for Carnival, to say the very least, but what has it been like managing through this situation?

ARNOLD DONALD: Look, this is unprecedented. This is a global pandemic. The entire world is engaged in it. We've completely paused our guest operations. You know, we've been fighting for the survival of the company. So it's an unprecedented time.

And so it's been interesting, to say the least, challenging, to say the least. But at the same time, in some ways it's been energizing and invigorating to see our people rise up and deal with the many, many challenges that we've had to deal with, and it's been encouraging to see the world rise up. And we stand with everyone in seeking to mitigate, you know, the spread of this virus and doing what we can do together to ensure that we achieve that.

BRIAN SOZZI: You know, Arnold, we've been covering this situation very closely here at Yahoo Finance. And for the past month or two, look, we've been covering infections and fatalities, and all eyes have been on Carnival's-- the Diamond Princess and the Grand Princess. What's the status of these two ships right now? In many cases, we talked to passengers on these ships. We've talked to them after. We've been closely following them. Where are they now?

ARNOLD DONALD: Well, of course our entire fleet has paused and operations. Physically, the Grand Princess-- or the Diamond Princess is still over in Asia. The Grand Princess is somewhere here in the Western Hemisphere. But the ships-- and we still have a lot of crew on board our ships because it's been difficult to repatriate crew back to their homes because of travel restrictions around the world. In some cases, borders are closed. So we still have 50 something thousand crew across our 100-plus ships that we're trying to repatriate, you know, back home.

But the bottom line is, you know, we are preparing now to manage through this pause and to be ready once the medical community and the scientific community has aligned around, you know, what are the best protocols to have in place to mitigate spread of COVID-19 and to manage whatever level of risk society is willing to take as people socially gather. So it's not about cruise. It's about when will society be ready for people to socially gather again, whether that's, you know, in restaurants and land resorts, cruise, airport terminals, subway, whatever it is. When will the society be ready for that? And then what are the protocols that will have been aligned around as the most effective ones to minimize the risk and mitigate spread?

BRIAN SOZZI: Arnold, these two-- to two ships in question, the Diamond Princess and the Grand Princess, what are your longer-term plans for them? Will they return to service?

ARNOLD DONALD: Those ships will certainly return to service. Diamond Princess in many ways in Japan is actually looked at as-- in Japan, a lot of the coverage [INAUDIBLE] the guests on that ship [INAUDIBLE] symptoms and how well they were treated, both from a commercial standpoint in terms of how we handled them but also from treatment on the ship itself. They saw the ship as helping to contain the spread of the virus.

You have to keep in mind that no ship has a virus. It comes when the people come on, and it came on these ships from community spread is where it originated. And then the degree of spread on the ship is still-- even with the Diamond Princess is still something that's an ongoing debate amongst the medical professionals.

But our policy is always the same. We will comply. With the Diamond Princess, we did exactly what the Japanese Ministry of Health instructed us to do. We allowed them to quarantine the ship, which is what, you know, it wanted to do. And so that wasn't a cruise those last few weeks. That was a quarantined ship those last few weeks.

So anyway, so those ships will come back in in due course. I think the Diamond Princess will have a nice reception in Japan, which is the home market for last year. And the Grand Princess, when she comes back, I'm sure she'll have a nice reception in the market.

BRIAN SOZZI: You know, Arnold, you mentioned procedures. What type of new procedures are you going to put in once the ships do go back into service-- new cleaning procedures, new operating procedures? What have you learned?

ARNOLD DONALD: You know, Brian, you know this well from covering the industry a bit, but, you know, the cruise industry has always had really high standards-- protocols around health. We've sailed to seven continents. I have 105 ships, nine, you know, different brands, and we sail everywhere in the world every year. So every year we have to deal with disease and virus, bacteria, health issues, whether it's Ebola, SARS, MERS, Zika, measles, norovirus, chicken pox, you know, whatever it is.

So many cruise ships-- most cruise ships, almost the entire industry has really high standards. We have things that most public venues where there are so few gatherings do not have. We have medical screenings. We have temperature screenings. We have hand sanitizer becoming more popular now throughout the ships. Signage about washing your hands is everywhere. We have medical facilities on board. So typically the standards have been even higher with regards to health, kind of preventative measures and treatment methods on board the ship than you'll find in many land-based venues.

Having said that, of course this is a new thing, and the epidemiology is still being determined. People still aren't quite clear. But I think in several weeks now with all the data flowing in around the world that the medical professionals and scientists will align around which protocols are the most effective to mitigate the spread and minimize the risk. Whatever those are will be the ones we will employ. And whichever ones that wherever we go-- because everywhere we go, there are standards. And wherever we go, whichever destination we go to, whatever the standards are in that destination, we have to meet them.

So it's premature to say exactly what that will be because the world is still deciding on testing even. You know, some say testing is a benefit. Some say it's not. Temperature scans-- some people say temperature scanning is helpful. Some say it's not. But soon the world will align around that, and whatever the world decides is what we will comply with. And again, obviously we'll take [INAUDIBLE] to see if we can go beyond that.

BRIAN SOZZI: Now, Arnold, no surprise here. There have been several lawsuits that started to crop up from the people on these ships that were impacted. From a Carnival perspective, you plan to establish a relief fund for families impacted by what happened on the Grand Princess and Diamond Princess.

ARNOLD DONALD: Not so much just for those ships, but in general, you know, we have a philanthropic arm, and we have been generous in the past with regards to natural disasters everywhere in the world and other crises that have popped up. And I'm sure our philanthropic arm will be looking at what can we do in the context overall of COVID-19.

You know, again, I don't want to get into too much debate around this, but the bottom line is community spread is what causes, you know, the COVID, and the cruise ships are-- you know, we're a big city at sea. Whatever happens in a city, that's what will happen on a cruise ship. And so from there, we have to look at it from that vantage point and move forward.

BRIAN SOZZI: You know, you mentioned that you have been fighting for her survival. Carnival has been fighting for its survival. You've raised, I believe, over $6 billion in liquidity. Are you still looking for liquidity? And the money you raised, how long a timeline does that give you in terms of a recovery?

ARNOLD DONALD: You know, the responsible thing as a CEO in this situation when you have, you know, paused your operations, you've paused your business for a period of time, for all practical purposes, and you have no revenues is, you know, we have to collectively, as a board and as management, ensure that we're able to withstand a long pause not knowing how long the pause would be.

Now hopefully, you know, we're overcompensating and we won't need to be as prepared as we're trying to be prepared. But yes, we raised a net $6.4 billion recently in the markets and senior debt and convertibles and public debt-- you know, equity. And then we also have drawn down on our revolver. So that was another $3 billion. And we continue to seek additional liquidity, whether it's, you know, delaying, you know, debt maturities, whether it's participating in stimulus packages around the world where it's appropriate for us to participate in them, et cetera, and, of course, managing. So we have to manage our business to the current situation, which is a temporary pause in our guest operations-- so, you know, reducing our costs, conserving our cash, et cetera. And that's the smart thing to do.

Right now we feel confident we could go through the year. We hope we don't have to, but we could go through our fiscal year. And we're trying to push beyond that, of course, and think there's a possibility that we could go even that much longer with zero revenues coming in and still be able to have a company at the end of it. But we'll have to see.

BRIAN SOZZI: Are you planning to raise more capital?

ARNOLD DONALD: At this point in time, again, we're seeking additional liquidity through things available to us, whether it's stimulus packages or other debt that normally would be available to us. But we have not have any immediate plans to go back into a public, you know, offering at this point.

BRIAN SOZZI: Saudi Arabia wealth fund took an 8.2% stake in Carnival, part of that-- those capital-raising efforts. Were there other options? And I'm very curious on why you went that route.

ARNOLD DONALD: No, look, we just did a public offering, and they chose to invest. We're happy to have them as investors. You know, they had a stake already, and they plused their stake up a bit with the offering. But we didn't make a particularly selective pitch to any one investor. We just opened it up to the broad investment community, and they chose to invest, and we're happy to have them.

BRIAN SOZZI: Have they expressed any interest in investing more?

ARNOLD DONALD: We haven't had any extended, you know, discussions with individual investors like that, but I hope they and everyone would be interested and invest more in us over time.

BRIAN SOZZI: Help investors understand this. Do you have to wait-- so the CDC has a no-sail order, which might extend until, by my math, July 24. Do you have to wait for them to green stamp and give it a go that sailing could happen again?

ARNOLD DONALD: The CDC, of course, regulates US sailings, and potentially others follow the CDC, but there are other health authorities around the world that people follow. So the CDC mandate, yes, the no-sail order was the earliest of three things, one of which is the 100-day date that you mentioned, which I think you're right is July 24. So yes, we would be in compliance with whatever, you know, our authorities order.

CDC I'm sure could issue a new statement at any time, including shortening this one if they thought it was in the best interests of public health. And we just stand with everyone and every place we go that we want to be in compliance with regards to whatever the public-health standards are, you know, for that particular destination, and the US is one of those.

BRIAN SOZZI: Do you anticipate that you will be sailing again before year end?

ARNOLD DONALD: Again, I would never try to put a timeline on it. We're preparing for the worst but, of course, hoping for something much better. And I think what will determine that, it's not about cruise. It's about social gathering and society's willingness to have people socially gather. If people are socially gathering, that's a condition necessary for cruise because that's what cruise is. And if that happens, then within the protocols that are defined in the various destinations we go to, with any supplemental things that we think we can come up with to further enhance the guest experience and derisk any health possible complications, we'll do it.

So could it happen before the end of the year? Absolutely. Will it happen? I don't know. Are we hoping that would happen? Absolutely, and I'm sure there are a lot of people out there, including a lot of our previous cruise goers, that are anxiously awaiting for the green light because they want to cruise. You know, people are still booking, especially for '21 but even for 2020. And as soon as we're able to cruise, I know there's a lot of people that are anxious to cruise with us because as you know, Brian, cruise is the best vacation experience and the best vacation value there is.

BRIAN SOZZI: On that-- to that end, Arnold, the bookings for early 2021, how are they looking?

ARNOLD DONALD: 2021 is looking good. I mean, we are continuing to get bookings there. There are a lot of people who have cruised for many years and have confidence, and they're anxious for a cruise. And so they're looking good there. You know, and that's about all I can say because we're between quarters and stuff. But the bottom line is, yeah, 2021, we are getting bookings, and they're good.

BRIAN SOZZI: The big question here is were you-- were you surprised that you didn't have-- that there was no relief for the cruise industry from the government? And I get it. The cruise line historically has not been domiciled in the US, but you guys employ a lot of people and a lot of folks in the US. Not just the cruise industry-- it's also the supply chain.

ARNOLD DONALD: Absolutely. You're absolutely right. We have 150,000 employees overall, many of them here in the US. But one job on a cruise ship is maybe four to seven other jobs in the economy. We're a huge economic multiplier.

So first of all, I think it's most important that the people who are dependent on cruise are taken care of in this crisis. And that includes, you know, travel agents. We have a lot of travel agents and professionals. This is their livelihood. Many of them focus or concentrate on cruise. So those people, when we're not cruising, it really hurts them. We've done some things to help them in terms of honoring commissions, even on cancelled cruises and so on, to try to help them.

We also have a host of other people, from, you know, little tour-guide folks who run dog-sled tours in Alaska to Uber drivers and taxi drivers, baggage handlers, restaurant owners, airlines, hotel owners when people spend the night before getting on a cruise. So it's a huge economic driver, and all of those people have been impacted-- the workers in the restaurants. Everybody's been impacted. And it's important, and I'm happy that there has been stimulus money trying to support many of those small businesses and those individuals.

For us as a company, we've been devastating with other companies in travel and tourism. It's been devastating for us. And so it would have been nice. We never asked for an infusion of cash or anything, but it would have been nice to have had some form of support, whether it was in guarantees of loans or whatever, but that didn't happen here in the US. And so, you know, we went out and our own nongovernmental-type financing and were able to secure enough to give us a runway.

BRIAN SOZZI: Are you-- let's get into how things shook out here. Are you open to being domiciled in the US in the hopes of getting some government relief?

ARNOLD DONALD: You know, we're a global company. We were incorporated in Panama. You know, more than half our income comes from outside the US. We're dual listed. We're listed in the London Stock Exchange and the New York Stock Exchange. We're a truly global company. You never say never about anything, but we wouldn't consider changing domicile to participate in a stimulus package. I mean, that-- we wouldn't do that.

So for us, you know, we pay, you know, hundreds of million dollars a year in taxes in the US-- not in the traditional form of income tax, which a number of people pointed out. But the reality is there's an alternative tax regimen for the maritime industry, which has existed for a long time because the ships move about around the world, and we do pay US taxes. It's just not in the conventional form that other companies pay.

Having said that, look, we're happy to be in the US. We are happy to sail US guests. We love working with our US partners, whether it's travel professionals, tour operators, you know, everyone that's involved in the cruise industry, and we look forward to sailing again soon.

BRIAN SOZZI: In terms of years, how many years has the industry been set back by this situation? We've talked in the past on how cruise ships have-- they finally started to attract millennials. But do you think millennials will want to get back on these ships?

ARNOLD DONALD: I think everybody's going to get back on the ships. And millennials over indexed on cruising prior to this happening, and I'm sure they'll be back again once we start sailing again.

You know, people want to describe it kind of as a cruise thing. This is not a cruise issue. You know, this is a societal issue as is evidenced by the fact people are staying home, you know, sheltering in place, et cetera. When society is ready to socially gather and society feels that socially gathering does not have undue risk, health risk, then we will cruise. Once we start cruising, the benefits of cruising, which attracted millennials and every other generation before, will attract them once again. This is in no way unique to cruise in any way.

BRIAN SOZZI: Arnold, you have some giant ships coming down the pike five years from now. Have the ships just gotten too big? Given what we might see going forward with social distancing and all the crowds on these ships, are you rethinking how you're designing ships?

ARNOLD DONALD: No, we're not. I think the reality is if you think about a large ship-- first of all, we're building small ships too. We have ships under construction that have 200 guests, and we have ships under construction that carry 6,000 guests.

But, you know, those who have been on a cruise know, when you're on a large ship or even a smaller ship, it's not like everybody's moving in one big glob all over the ship. That's not how it works. And the larger ships actually have more space. And so there is actually opportunity for more natural social distancing on a number of the large ships.

But in the end, all of this is in this moment. In several weeks' time or a few months' time, there will be an alignment from scientists and medical professionals what is the best way to mitigate the risk of this particular virus. And whatever that is, we'll be able to deploy it on ships as you can deploy it elsewhere. Wherever-- as long as there's social gathering. If there's no social gathering, there's no cruise.

But if we're social gathering-- if universities are open and dorm rooms and restaurants are open and airline terminals and subway stations, if those things are open and receiving people, then the cruise will be able to as well.

BRIAN SOZZI: Lastly, Arnold, bottom line, do you think Carnival survives this, and what does survival look like? What does your company look like coming out the other side?

ARNOLD DONALD: I think clearly initially we're going to come out operating smaller than we did before we went into this, but that's because there won't be some light switch. Every destination is not going to open simultaneously. You know, every world market is not going to have instantly the same protocols. That's not going to happen. So it kind of shut down gradually as the virus moved from east to west, and I suspect it will open gradually as different jurisdictions and destinations determine their own way forward concerning public health.

So with that in mind, we'll do a slow ramp-up, fitting in wherever we need to fit in. But eventually, I think the cruise industry will be as robust as ever and be back on a road forward once society, again, adapts to COVID-19.

BRIAN SOZZI: And you're still committed to China? Coming into this year, you were supposed to have, I think, 5% of your capacity devoted to China. But given where this started, are you still committed to the Chinese market?

ARNOLD DONALD: Yeah, we're committed to the Chinese market. But [INAUDIBLE]-- yeah, of course the first place we shut down was China because that's the first place the virus hit. And when the virus hit there and became, you know, pervasive, we stopped sailing with our ships in China. It's only a small percent of our fleet, but of course we did.

But China's still the largest market in the world for everything. It will be the largest market in the world, most likely, for cruise at some point in the future.

Has the timelines changed for everything? Everywhere in the world the timeline has changed for everything. But beyond that, eventually as the world adapts and moves forward, China will once again be a robust market opportunity for every industry, I suspect.

BRIAN SOZZI: All right, let's leave it there. Arnold Donald, CEO of Carnival Corporation, thank you for taking the time.

ARNOLD DONALD: Thank you, Brian.

BRIAN SOZZI: We'll talk to you soon.

ARNOLD DONALD: Talk to you soon. Take care.