Washout As Disney Cruise Line Reveals $325 Million Loss
Disney has revealed that its cruise line was still stuck in the troubled waters of the pandemic last year as it made a $325.8 million net loss – the second-worst result in its 26-year history.
According to financial statements that were recently filed, Disney Cruise Line’s revenue rose more than 11-fold in the year to October 1, 2022. Although demand began to return, it was still far from the pre-pandemic high when the cruise line had annual revenue of $1.6 billion in 2019.
The increase in demand led to a need for more personnel with staff numbers doubling last year to 6,221 and their pay increasing 67.8% to $104.1 million. The rise in revenue far outstripped the overall increase in costs which doubled to $1.5 billion thereby halving the cruise line’s loss from 2021 which was also fueled by the pandemic.
It brings Disney’s losses from its cruise line since the onset of the pandemic to a total of $1.2 billion which stands in stark contrast to the performance of its theme parks.
Disney prides itself on how quickly its attractions rebounded from the pandemic. Footage of queues of customers went viral when its parks in Orlando re-opened after just four months of lockdown in July 2020. There is good reason why it hasn’t been plain sailing for its cruise line.
Its fleet of five ships was grounded by the pandemic in March 2020 and sailings didn’t resume until summer the following year. Even then they only came back on stream in phases which kept the company that operates them in the red.
The cruise line’s results are not itemised in Disney’s filings in the United States as it doesn’t go into detail about each of the individual businesses it owns. However, Disney Cruise Line is operated by the Mouse’s Magical Cruise Company subsidiary which is obliged to file annual financial statements as it is based in the United Kingdom.
The cruise line has historically been a cash cow and Disney has sailed off with $1.6 billion of dividends from it as we revealed in January. However, in the same month, our report in the Sunday Times disclosed that Disney Cruise Line plunged to a $629.5 million net loss in 2021 after losing $255.9 million the previous year.
Despite the heavy losses, Magical Cruise Company’s five directors were paid 17.4% more last year with their combined pay hitting $2.2 million. The highest-paid director alone got $1.4 million, a 42.4% increase on 2021.
However, even though the company lost $325 million in 2022 it wasn’t left short.
The financial statements reveal that a fellow Disney subsidiary, Disney Enterprises, gave it a $500 million promissory note which had a number of consequences. Notably, the amount that Magical Cruise Company owed to group undertakings rose almost six times to $815.5 million.
That led to an 87% increase in the company’s net current liabilities – the level of debt that remains after its current assets (ones that will be used or sold within 12 months) have been subtracted from its current liabilities, which must be paid within 12 months.
Magical Cruise Company was left with $1.1 billion of net current liabilities thanks to the promissory note and, in turn, the financial statements say that the directors carried out a “cash flow forecast extending to a period no less than 12 months from the date of the financial statements, including consideration of severe yet plausible downsides, reflecting that the company was in a net current liability position as at 1 October 2022.
“Whilst they expect to be able to meet the day to day cashflow needs of the company, they have received assurances of continued financial support from a fellow group undertaking, in the form of a letter of support, to allow the company to meet its liabilities as they fall due without significant curtailment of operations for a period of at least 12 months from the date of these financial statements being signed.”
The financial statements add that “the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future.” It may not sound like a resounding endorsement of the cruise line’s fortunes but it is exactly what was needed.
Disney Cruise Line finally seems to be charting a course back to profitability. Last month it extinguished the $500 million promissory note and replaced it with a $500 million revolving credit agreement which falls due on June 14 2024. The directors expect to right the ship well before then.
According to the financial statements, “all of the company’s cruise ships have resumed sailing, with occupancy continuing to increase as demand for travel rebounds.”
They add that “as the cruise industry continues to recover from the COVID-19 pandemic, we have seen an increase in occupancy levels…to 96% as of March 2023.” The company has been heading full steam ahead since then.
Later this year Disney Cruise Line will launch its first-ever South Pacific itineraries, giving guests the chance to experience exotic destinations like Fiji and Samoa as well as Australia and New Zealand.
This should build on the boost in occupancy which hasn’t just been driven by pent-up demand during lockdown. Disney Cruise Line has also tempted tourists with a new ship.
Launched in June last year, the Disney Wish was the cruise line’s first new ship in a decade. It features an innovative water slide with screens set into the side of the tubes to tell a story about Mickey Mouse whilst riders rocket past on rafts propelled by powerful jets of water.
Built at Germany’s Meyer Werft shipyard, the Disney Wish has 1,254 rooms and is valued at $1.4 billion in the financial statements. As shown in the table below, it is five times the value of the Disney Magic which was the media giant’s first vessel when it launched in 1998.
Value of Disney Cruise Line’s fleet
Disney Magic (1998) $278.7m
Disney Wonder (1999) $303.9m
Disney Dream (2010) $760m
Disney Fantasy (2012) $810m
Disney Wish (2022) $1.4bn
The directors expect the cruise line to return to profitability in 2023 thanks to its increase in capacity and occupancy combined with the new routes. It isn’t stopping there.
Disney will launch three more cruise ships over the next two years including one which will be the world’s largest by passenger capacity as it will accommodate 6,000 people. Disney acquired it in November for a reported $44 million after its previous owner, Genting Cruise Lines, fell into administration.
In March Disney announced that the ship’s home port will be Singapore when it launches in 2025. In the meantime, two other ships in the same class as the Wish will launch in 2024 and 2025 starting with the Disney Treasure. Referring to these acquisitions, the financial statements reveal that Magical Cruise Company has $1.9 billion of minimum contractual payments under its purchase agreements. That’s not all.
A wholly-owned subsidiary of Magical Cruise Company is also developing Disney’s second private island in the Bahamas which is due to open in summer next year. Called Lighthouse Point, 90% of the site’s power will come from solar energy and less than 20% of the entire site will be developed to preserve the original habitat. Touches like this differentiate Disney from other operators and that’s exactly what it needs.
Data from industry monitor CruiseMarketWatch shows that in 2021 Disney had just 2.2% of the market for passengers and 2.7% of the total revenue. It is a far cry from industry leader Carnival, with its 37.1% share of the revenue and 42% of the passengers. So, despite its growth and the strength of its brand, Disney’s cruise line is still a minnow of the industry.