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[Annotation] pxw503 Port of Seattle Commission Retreat July 29, 2020 2020 Commission Budget Retreat Agendas July 29th 8:30 12:45 August 6th 8:30 11:45 To be in accordance with the Governor's 'Stay at Home' order and Proclamation 20-28, the public may listen to the full meeting live via phone by calling (425) 660-9954, meeting ID: 841799251#. There will be no public comment during this meeting. The purpose of this retreat is to receive input from industry experts and to review our internal SWOT analysis in preparation for the 2021 budget season. Commissioners will also discuss individual budget priorities. July 29, 2020 Industry Analysis and Port-wide SWOT 8:30 am Opening Remarks and Goals for the Day Steinbrueck & Metruck 8:45 am Industry Experts Analysis: Will COVID fundamentally change the way that people travel and trade in any long term/permanent manner? What does 'recovery' look like in 2021? Aviation 45 minutes o Mark Pearson, VP Real Estate, Delta Airlines. Steinbrueck contacted Scott Ingham, who secured Pearson's agreement to speak o Stephen Van Beek, head of North American Aviation for the Steer Group, a global consultancy Cruise 30 minutes o Luis Ajamil, Bermello Ajamil Partners. His firm has advised for Port for many years. Maritime/Real Estate 30 minutes o Irwin Park with Madison Bay, expert on Ballard/Interbay o Matt Anderson with Heartland. He is managing the Port's RE Strategic Plan update and did our plan in 2016, and was the consultant lead on our 2000 Harbor Industrial Lands study. His firm also did work for the state on the Armory project. 11:00 am Break 11:10 am Preliminary CIP Maritime/EDD Funding Analysis Metruck Thomas, Morrison 12:30 pm 2021 Commission Budget Priorities Commissioners 6 minutes each Pritchard 1:00 pm Closing Remarks and Next Steps Commissioners & Metruck 1:30 pm Adjourn August 6, 2020 CIP and Levy Discussion 8:30 am Opening Remarks and Goals for the Day Steinbrueck & Metruck 9:00 am Brad Tilden, Alaska 9:45 am CIP and post-COVID planning Metruck 10:45 am Break 11:00 am 2021 Levy Discussion Metruck, Thomas 11:45 pm Closing Remarks and Next Steps Commissioners & Metruck 12:00 pm Adjourn Attending Steve Metruck Commissioners and Commission Office Staff Dan Thomas, Michael Tong, Kelly Zupan, Elizabeth Morrison Lance Lyttle, Borgan Anderson Dave McFadden Stephanie Jones Stebbins Elizabeth Leavitt Katie Gerard Dave Freiboth Dave Soike Pete Ramels Bookda Gheisar Mike Merritt Larry Ehl Pearse Edwards Glen Fernandes Commission 2020 Budget Retreat Part 1 Table of Contents 1 Industry Analysis a. Aviation Industry i. Aviation Industry News Articles (see online version for live links) ii. Studies not included in packet: https://www.iata.org/contentassets/5f8235a4ef364ec886ad2594531c0 4d0/covid-19-survey-press-briefing-presentation-.pdf (Air Traveler Response to COVID-19) https://841ed702-b164-4a83-ac1c- 51394def254c.usrfiles.com/ugd/841ed7_84d21bca89ec4c89a781630da 36f7787.pdf (Survival and Revival of Airport Shopping and Dining) iii. Presentation by Mark Pearson, VP Real Estate, Delta Airlines iv. Presentation by Stephen Van Beek, head of North American Aviation for the Steer Group, a global consultancy b. Cruise i. Cruise Industry News Articles (see online version for live links) ii. Studies not included in this packet https://www.ubs.com/content/dam/WealthManagementAmericas/doc uments/longer-term-investments-silver-spending.pdf (Silver Spending - Long Term Investments) iii. Presentation by Luis Ajamil, Bermello Ajamil Partners c. Real Estate i. Real Estate Industry Background Articles ii. Presentation by Erwin Park with Madison Bay, expert on Ballard/Interbay iii. Presentation by Matt Anderson with Heartland 2 Non-Airport Financial Performance and CIP Funding Capacity Analysis 3 Commission Budget Priorities 4 Appendix a. Cruise Industry News b. Cargo Industry News c. Portwide Sponsorships and Memberships Aviation News Articles Puget Sound Business Journal July 17, 2020 'NOT THIS YEAR OR EVEN NEXT SUMMER' Facing travel bans and passenger health concerns, airline recovery may take years With airline passenger traffic volumes rising in Seattle and other major U.S. cities over the past two months, top airline executives and analysts who follow their companies caution that a full recovery remains a long way off. "We're on an uptick. But none of us thinks it's going back to where it was," Alaska Air Group CEO Brad Tilden warned during a recent airline industry webinar. In 2019, Alaska carried an average of 133,000 passengers daily across the U.S. That cratered to 4,000 daily passengers during the worst part of the pandemic in March and April. In early July, Alaska carried 45,000 people a day across the country, Tilden said. "We're building back. I don't think we believe we're going to get there this year or even next summer." Airline industry analysts agree, but remain heartened. "Traffic over the (July 4) holiday weekend was better than it has been since around March 18," Cowen and Co. Managing Director and veteran airline analyst Helane Becker said. "There were three days (out of four) when the number of passengers screened by the Transportation Security Administration exceeded 715,000. We're a lot better than I expected we'd be by now." Still, Becker, who predicts that daily volumes might rise to 1 million passengers daily for Thanksgiving and Christmas holidays, said that despite recent optimism, she continues to believe it will take three to five years before 2019 airline traffic levels return. CFRA Research analyst Colin Scarola told clients that while some believe a robust recovery is underway, no significant turnaround will come soon because people still don't feel comfortable traveling. "If recent polls are remotely accurate, more than 40% of Americans are uncomfortable flying during the pandemic," Scarola said. Cowen's June consumer polls found most people still don't want to fly until 2021, Cowen said. Scarola said that means that any recovery will stall in the second half of 2020, leaving airlines burning more cash than they're bringing in from ticket sales, "especially as business trips remain a no-go for many employers." Raymond James Managing Director and airline analyst Savanthi Syth said her firm's June traveler survey also showed only 45% intend to return to the skies within a few months of the pandemic subsiding; 36% said they'd wait six months. Syth told clients the modest recovery began stalling in July's first two weeks, because of the surge of infections that have pushed the pandemic daily case numbers to new records in Washington state 1,100 new daily cases on Tuesday and Florida, Texas and California. Buoyed by June passenger upticks, Alaska, Delta and United had added hundreds more flights for later this summer and fall and returned grounded jets to service after parking hundreds this spring. Those plans are being scaled back now as traveler unease grows. Bainbridge Island aviation analyst Scott Hamilton, of Leeham, never stopped being uneasy. "Although more passengers are flowing through airports and airlines are adding back service, airplane order deferrals continue. Airline bankruptcies do, too," Hamilton told his clients. Among them, Level, a low-cost Austrian airline, and Romanian budget carrier Blue Air, will likely end its six orders for 737 Max jets. LATAM Argentina also ceased operations, while its parent LATAM Airlines Group, AeroMexico and Colombia's Avianca all entered bankruptcy proceedings. It's a nightmare for Boeing and Airbus. After years of record sales, both slashed production and will shed a combined 30,000 workers. Scarola said another recovery factor prices for tickets sold also "is being overlooked." Scarola said fare prices fell 29% year over year in May as too many airlines battled for too few passengers. "Some investors expect leisure fares to rapidly increase in the second half, but we doubt it," Scarola said. At least 14 states, including New Jersey, New York and Connecticut, now require out-of-state visitors to undergo 14-day quarantines. Bookings for the past two weeks have dropped, Syth said, and summer fares are dropping, not rising. Becker canceled her vacation, refusing to self-quarantine. Scarola said one example of pricing pressure on the downside is Alaska rival JetBlue Airways' launch of 30 leisure routes to capitalize on consumers' intense desires for domestic vacations after lockdown. Southwest made a similar move, as the carriers fight for smaller market share. Still, increasing airplane flights are raising the hopes at Aviation Technical Services, whose Everett-based business has dropped 40% since March. ATS maintains and overhauls Southwest and Alaska jets: More planes flying means more work in the months ahead, CEO Matt Yerbic said. Airline Industry Online July 20, 2020 Novel Coronavirus Shakes Up Global Airline Industry by Cathy Buyck In keeping with his motto "Stay strong. We will get through this crisis and keep the world connected," the International Air Transport Association (IATA) director-general Alexandre de Juniac did not want to sound too pessimistic when briefing media earlier this month on the recovery prospects of the industry. Yet, his message was gloomy. "This crisis could have a very long shadow. Passengers are telling us that it will take time before they return to their old travel habits. Many airlines are not planning for demand to return to 2019 levels until 2023 or 2024," he warned, as he shared the results of a survey of leisure and business travelers in 11 countries, conducted in February, April, and June on behalf of IATA. Eighty-four percent of passengersor more than 8 out of 10 surveyed in June are afraid to travel until Covid-19 is contained, up from 74 percent in February, and just 45 percent said that they will travel again in the first months after the pandemic subsides. In early April, 61 percent said that they would. About two-thirds see less travel in their futurebe it for vacation, visiting friends/relatives, or business. Research from global consultancy ICF echoes IATA's findings. Its surveys of aviation sector participants and travelers from across the world conducted in late March/early April and in late May/early June show that views on the recovery have become markedly more pessimistic. Industry stakeholders expect a much slower recovery to pre-crisis activity levels. Where in late March/early April most anticipated the recovery to take six to 12 months,in late May/early June the majority of respondents (56 percent) put the recovery timeframe at more than two years. Within that category, 28 percent of respondents answered between two and three years, 24 percent answered between three and four years, and 4 percent expected the recovery to take longer than four years. As for consumers, regardless of location or reason for traveling, almost everyone (95 percent) expressed different attitudes about traveling in the wake of the Covid-19 pandemic. "It is clear that the road to recovery is not going to be smoothor rapid," ICF's consultants concluded. Worst Year in Aviation History For sure 2020 is set to become a dismal year for airlines financially, as the pandemic and relating travel restrictions or bans, border closures, and quarantines bring an abrupt end to a decade of steady profitability. Globally, airlines can expect to lose $84.3 billion this year, for a negative net profit margin of 20.1 percent, according to IATA's latest outlook, released in early June. IATA expects revenues to fall 50 percent, from $838 billion in 2019 to $419 billion this year. Passenger revenues will likely collapse to $241 billion, about a third of last year's level. Passenger numbers will roughly halve to 2.25 billion, roughly equal to 2006 levels, which would equate to an average net loss of $37.54 per passenger. During the height of the financial crisis, in 2008, operators incurred an average loss of $10.49 per passenger. "Financially, 2020 will go down as the worst year in the history of aviation," commented de Juniac. "On average, every day of this year will add $230 million to industry losses." IATA's projections assume no second wave of Covid-19 cases and thus end-of-year figures could prove worse owing to the continued rise of the number of infectionsfrom 5.9 million reported cases on May 31 to 12.8 million reported cases on July 13, according to World Health Organization (WHO) data. "There is a lot to be concerned about," stressed WHO directorgeneral Tedros Adhanom Ghebreyesus during a July 13 media briefing. "The virus remains public enemy number one, but the actions of many governments and people do not reflect this," he said, warning that if people don't follow basics the pandemic will get "worse and worse and worse." Europe Upholds Fractured Approach to Travel Restrictions Several countries, regions, or cities that overcame the first peak of the outbreak and eased lockdowns and now see an increase of new infections have begun to reinstate restrictions or quarantines. In Europe, the situation changes almost daily, as each government applies its own rules for travel to and from non-EU countries but also within the bloc, wreaking havoc on airlines' schedules as they unground part of their fleets and restore networks. "This has effectively led to a patchwork system of travel restrictions and border controls throughout Europe, which may remain in place for weeks or months to come," Airlines for Europe (A4E) and ACI Europe lamented in a joint statement. "As a result, there is very little clarity and significant uncertainty on which citizens can travel where," the European airlines and airports trade groups said. For Thomas Reynaert, managing director of A4E, the situation "is also creating an uneven playing field within Europe at a time when our sector is still struggling for survival." IATA projects Europe's airlines to lose $21.5 billion in 2020 and account for among the top three worst-affected regions, globally. Passenger demand is set to decline by over half, according to IATA's forecast. Eurocontrol data show that some 13,378 flights operated in the European network on July 13. That equates to about 37 percent of 2019 levels, though it represents a welcome increase on the 4,679 flights that took place a month earlier. Ryanair, which grounded up to 98 percent of its fleet, reclaimed its pre-coronavirus leadership position and operated 1,006 flights. Three low-cost carriers rank in the top five in terms of movements, Ryanair, Wizz Air, and EasyJet. Only one EU legacy airline, Germany's Lufthansa, features in the top five despite most of the bloc's flag carriersincluding Air France, Austrian Airlines, airBaltic, Finnair, KLM, SAS, and TAP Air Portugalhaving received generous financial support packages from their governments. Generous Government Aid But Not to All Airlines State aid made available to airlines due to Covid-19 topped $120 billion by early June, IATA analysis reveals. However, not all governments, mainly in Asia, Latin America, and Africa, have shown a willingness or an ability to afford s supporting their airlines in the same fashion, leaving operators cashless. "Several airlines have already entered bankruptcy protection or administration since the start of the pandemic, including Aeromexico, Air Mauritius, Avianca, South Africa's Comair, LATAM Airlines, Thai Airways, and Virgin Australia. With all of them, the failure to secure financial support from their governments was the main driver," pointed out Brendan Sobie, founder of Singapore-based independent aviation consulting and analysis firm Sobie Aviation. He added he expects all seven to successfully emerge from bankruptcy or administration and survive following restructurings. A handful of other airlines have ceased operations entirely and are in the process of being liquidatedAustria's Level Europe and sister airline Level France, Germany's SunExpress Deutschland and Thailand-based NokScoot"but they were small subsidiaries of much larger parents that continue to operate," Sobie told AIN. He warned that a few more Asian budget airlines could shut down, joining NokScoot, including some of the nine airlines that operate under the AirAsia brand. "Asia's independent LCCs are currently at a disadvantage because thus far the bailout packages by Asian governments have only benefitted full-service airlines and their LCC subsidiaries," Sobie asserted, adding that governments might still step in on behalf of LCCs. For example, AirAsia expects to secure government loan guarantees in Malaysia and the Philippines, helping to support an overall restructuring that also includes a planned equity sale and renegotiated aircraft lease agreements. According to IATA predictions, airlines in the Asia-Pacific region will be the hardest hit by the coronavirus crisis of any global region, with losses expected to total $29 billion for 2020. The association expects Asia-Pacific passenger demand to fall 53.8 percent year-over-year. Forbes July 20, 2020 Can Insolvencies Be Avoided In The Face Of $3.4 Billion Losses For Airport Retailers? Anyone who thinks that downtown retailing is having a hard time during the Covid-19 era needs to visit any airport in the U.S. Retail and restaurant concessionaires there are on their knees thanks to forced closures and travel bans. Losses that started mounting from March are expected to balloon to $3.4 billion by the end of 2021 if no mitigating action is taken according to a newly-published forecast from the Airport Restaurant and Retail Association (ARRA). Even with extra seat capacity being returned into the American domestic network this summer, the picture is decidedly downbeat. ARRA's report, called "The Survival and Revival of Airport Shopping and Dining," says that the businesses it represents "regardless of size will quickly be facing solvency issues." The association adds: "The current trajectory... will usher in a wave of permanent restaurant and retail closures that will turn bustling airports once pulsing with energy into 'ghost towns' even after travel recovers." The latest scheduled seat data from analyst OAG for the week starting July 13, show that the U.S. market is down 46% versus late Januarybefore coronavirus cases led to a lockdown in Wuhan and other cities in China. Show Up For Young Absentee Voters OAG's chief analyst John Grant said in a blog post: "Last week's significant capacity increases from both American Airlines and United Airlines could not be repeated for a second week, although American adding a further 200,000 plus seats a week into the market reflects some confidence in future demand. It also places the airline ever closer to taking back the number one position from Southwest Airlines." "Flights are not passengers" Throughout June, Southwest has been the world's leading airline for scheduled capacity, but American Airlines has been quickly restoring routes. But ARRA rightly points out that "flights are not passengers: traffic still will not recover this year." According to Airlines For America, in the week ending July 12, domestic air travel was down by 71% while internationalwhich attracts higher-spending passengerswas down by 90%. Looking at passengers processed by Transportation Security Administration airport checkpoints, daily July traffic had yet to break 80,000 by mid-month. Last year at this time, daily numbers were at the 2.5 million level, so ARRA could be right on its forecast. Down down down: ARRA estimates put cumulative losses at $3.4 billion by the end of 2021. While the recent uptick in passengers is welcome, the report warns that "reopening too soon is a recipe for financial disaster." ARRA says: "This is potentially worse than being closed at extremely low passenger volume as costs that can be eliminated when stores and restaurants are closed are now incurred, and grow at a faster rate than the underlying sales." Typically restaurants cannot return to profitability until they recover at least 85% of sales, and the story is similar for retailers. Nonetheless, some retailers are attempting a restart. Hudson, a powerful player in the market, has begun a reopening program of its stores, despite Covid-19 turning a 2019 first quarter operating profit of $15.1 million into a loss of $76.3 million for the same period this year. How its stores perform will not be fully evident until third quarter results come in. Food travel retailer SSP increased its revenue from North America in the six months to March, but that is likely to be the last growth spurt for a while. Reopening a bit at a time How can airport stores and eateries open and still remain financially viable? By reopening in a smarter way, at a measured pace says ARRApreferably starting with stores that directly meet traveler needs, like coffee, quick-service and convenience outlets, followed by bars and fullservice restaurants. This makes sense, but it also creates problems for those units that will remain closed until passenger numbers pick up strongly. The variable nature of Covid-19 infection rates in the U.S. and spikes in Florida, California and Texas, mean that a big traffic pick-up is not around the corner. The uncertainty has made Goldman Sachs revise its passenger forecasts through 2022 and it does not now expect 2019 passenger numbers to be reached until at least 2023. That is a long wait for businesses to reopen. Yet the ARRA report suggests that "at our current 25% traffic level, nearly 75% of current program space can be considered surplus." Retailers are hoping that American airports will get to 35% of 2019 traffic this summer, and 50% before the end of the year. At these traffic levels, opening every shop and restaurant would dilute each one's earning power and risk the viability of them all. In the report, ARRA argues that opening "an appropriate number" of stores based on traffic would give those businesses a fighting chance of being profitable. Closed units, even with minimum annual guarantee (MAG) waivers, would face significant hurdles and have to service debt. Way too much concession space "Concessions programs developed over the past decade were sized during a period of high enplanements and tremendous anticipated traffic growth," notes ARRA. "Current leases were proposed and negotiated in anticipation of this growth. The result is that there is too much space." ARRA has put forward four solutions for airport landlords to consider in the knowledge that they face concession challenges for at least three years. They can be summarized as follows: Deactivate units and suspend leasesincluding payment of MAGsuntil passenger traffic is back to a viable level. Leases and rents simply restart for the balance of the term. Airports buy out leases, or portions of them, through purchase of concessionaire assets. The space can be re-tendered as required. Concessionaires give back spaces to the airport with no penalty. The lease is cancelled and all obligations end. Do nothing different. Either airports demand restaurants and retailers open their stores or they let them remain closed, but demand MAG payments. In these cases the risk of bankruptcy is high. Several major airports have already agreed to temporary rent waivers this year including Atlanta Hartsfield-Jackson, Los Angeles World Airports, Miami International. The Cares Act 2020 already provides $10 billion worth of grants to shore up airports and their concessionaires with at least 30 major U.S. gateways gaining assistance. Rent waivers could therefore extend into 2021 if current low-traffic conditions persist and become chronic. Is structural change inevitable? Covid-19 has resurrected calls worldwide for the retail concession framework at airports to be overhauled so that there is a more balanced and responsive formula for rent and/or profit sharing when things go wrong. In France, at Group ADP, and Germany, through Frankfurt Airport Retail, for example, joint venture models between airport landlords and retailers exist where the risks and the rewards are shared. In the U.S. the entire aviation financial eco-system is in need of a reset, believes ARRA. The association says: "If we contemplate that U.S. aviation traffic may not recover for three years, we must also contemplate structural revisions to the industry. The system needs help to support the services and experience our customers have come to expect. We need to think through as partners how that will work. It's time to begin the conversation." Delta Air Lines July 29, 2020 Safe Harbor Statements in this presentation that are not historical facts, including statements regarding our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the estimates, expectations, beliefs, intentions, projections and strategies reflected in or suggested by the forward-looking statements. These risks and uncertainties include, but are not limited to, the material adverse effect that the COVID-19 pandemic is having on our business; the impact of incurring significant debt in response to the pandemic; the possible effects of accidents involving our aircraft; breaches or security lapses in our information technology systems; disruptions in our information technology infrastructure; our dependence on technology in our operations; the performance of our significant investments in and commercial relationships with, airlines in other parts of the world; failure to comply with the financial and other covenants in our financing agreements; labor issues; the effects of weather, natural disasters and seasonality on our business; the effects of an extended disruption in services provided by third parties; the cost of aircraft fuel; the availability of aircraft fuel; failure or inability of insurance to cover a significant liability at Monroe's Trainer refinery; the impact of environmental regulation on the Trainer refinery, including costs related to renewable fuel standard regulations; our ability to retain senior management and key employees; damage to our reputation and brand if we are exposed to significant adverse publicity; the effects of terrorist attacks or geopolitical conflict; competitive conditions in the airline industry; interruptions or disruptions in service at major airports at which we operate; the effects of extensive government regulation on our business; the impact of environmental regulation on our business; the sensitivity of the airline industry to prolonged periods of stagnant or weak economic conditions; and uncertainty in economic conditions and regulatory environment in the United Kingdom related to the exit of the United Kingdom from the European Union. Additional information concerning risks and uncertainties that could cause differences between actual results and forward-looking statements is contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2019 and, our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020. Caution should be taken not to place undue reliance on our forward-looking statements, which represent our views only as of July 14, 2020, and which we have no current intention to update except to the extent required by law. 1 Current Environment COVID-19 has had an unprecedented impact on Delta's business Delta's response to this crisis has been focused on three key priorities: 1. Protecting the health and safety of employees and customers 2. Preserving financial liquidity 3. Defining Delta's recovery path Demand has recovered from mid-April lows, driven by domestic leisure travelers, but has flattened with the rise in COVID-19 cases - International improvement expected to lag Domestic by 1 to 2 quarters - Industry experts expect 2021 demand to be ~20-30% smaller than 2019 - Return to 2019 revenue levels not expected until at least 2023 Principal financial goal is to reduce average daily cash burn to zero by year end - Daily average cash burn of $27 million in June, a significant improvement from peak burn rate in late March and initial expectations Note: The company defines cash burn as net cash from operating activities and net cash used in investing activities, adjusted for (i) net redemptions of short-term investments, (ii) strategic investments, (iii) net cash flows related to certain airport construction projects, (iv) proceeds from financing arrangements that are reported within investing activities, (v) CARES Act grant proceeds, and (vi) other charges that are not representative of our core operations, such as charges associated with our voluntary separation and early retirement programs. 2 Current Environment COVID-19 has impacted the industry more profoundly than 9/11, the Great Recession 3 Delta: Aggressive Self-Help Measures to Preserve Cash Cost Reductions Cash Preservation June quarter total expenses declined by $5.5 Expense reduction has driven significant billion or 53% over prior year; expect to achieve a improvement in daily rate of cash burn similar 50% reduction in the September quarter Reduced CapEx by ~$3.5 billion (77%) in 2020 Deferred new aircraft deliveries, aircraft mods, Labor savings driven by 25% reduced work IT initiatives and ground equipment refresh schedules and more than 40% of workforce taking voluntary leaves Extending payment terms with airports, vendors and lessors More than 17k employees have taken voluntary retirement/separation packages, equivalent to Average Daily Cash Burn more than 20% of the non-pilot workforce $100M Consolidated airport facilities, including the temporary closure of concourses and Sky Clubs, $27M and announced temporary and indefinite suspensions of service in certain markets $0 End of March June Dec. (target) Reduced contractor and discretionary spend 4 Airports: Aggressive Self-Help Measures to Preserve Cash O&M/CapEx Payroll Impact Delta's hub airports began eliminating operating Some of our hub airports have saved costs through costs in March, including shuttering concourses payroll cost-cutting measures where possible; average savings of ~18% LAX granted >350 employees severance through a voluntary early retirement package ATL, BOS, DTW, JFK, LGA, LAX, MSP, SLC have DTW has completed ~20% reduction in at-will all closed terminals and strategically cut CapEx headcount; discussions with union population, projects during the COVID-19 crisis including voluntary retirement packages, are O&M Reduction: 2Q ongoing 44% Additional cuts of contractor services 41% 40% Airports have discretion to reduce headcount by 30% 27% 10% under the provisions of the CARES Act 19% Hub average: 18% 10% 10% 8% LGA LAX BOS ATL JFK DTW MSP SLC SEA 5 Acceleration of Strategic Capital Projects Delta is supportive of opportunistic, phased airport expansion to deliver enhanced efficiency to complete capital projects Construction at LGA, LAX and SLC has been accelerated a year on average thanks to our opportunistic response LAX LGA 18 months early 6 months early SLC 12 months early SAMP 6 Recovery is Dependent Upon Partnership The timeline for industry recovery to pre-COVID-19 levels remains unclear Operating cost reductions and capital preservation in the near-term are key to weathering the storm Lower traffic levels do provide a "silver lining" to be opportunistic with core strategic longer-term initiatives Airline recovery is the key driver to airport recovery and we must strive to align our goals and initiatives focusing on: The health and safety of our passengers and employees Long-term financial stability 7 SEA and the Aviation Industry: Managing the Uncertain Recovery Stephen D. Van Beek, Ph.D. Director and Head, North American Aviation Steer: Employee owned transportation management consultancy For further details, please contact: Stephen D. Van Beek, Ph.D. Director and Head of North American Aviation Stephen.vanbeek@steergroup.com +1 703 788 6878 Steer 1800 Diagonal Road Suite 540 Alexandria, Virginia 22314 DISCLAIMER: This work may only be used within the context and scope of work for which Steer Davies & Gleave Ltd. trading as Steer was United States of America commissioned and may not be relied upon in part or whole by any third party or be used for any other purpose. Any person choosing to use any part of this work without the express and written permission of Steer shall be deemed to confirm their agreement to indemnify Steer for all loss or damage resulting therefrom. 2 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery Today's Agenda: Introduction The Strength of SEA pre-Coronavirus Airport Industry SWOT July 2020 Six Variables to Track During the Post-Lockdown, Pre-Vaccine Period The Forecast and the Coronavirus Strategic Partnerships Financial Challenges and Actions 3 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery SEA traffic has been growing (3.8%) stronger than U.S. average for Large Hubs (2.5%) Seattle-Tacoma International Airport Seattle Historical Figures 1990-2019 T-100 Million enplanements (SEA) has experienced a CAGR of 3.8% 30 in the last 30 years. 25 Its strong regional economy is the base 20 for a strong origin and destination market as well as serving as a hub 15 airport for 2 airlines. 10 The last 5 years were particularly 5 strong with SEA growing annually at - 5.4% across the domestic and 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 international markets. Domestic International 2019 shows an average growth of Seattle Year on Year Growth 2018-2019 approximately 4% across both % 9.0% segments. 7.8% 8.0% 7.0% 6.0% 6.0% 5.0% 4.3% 3.7% 4.0% 3.0% 2.0% 1.0% 0.0% Domestic International Source: FAA, BTS, Steer 2018 2019 4 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery 10 years of growth has been driven by economics, competition and inbound international service Seattle Historical Figures 2010-2019 T-100 Million enplanements 35 30 9.0% 2.0% 25 (2.6)% (1.1)% 20 14.9% 15 10 4. 6% 5 - 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Alaska/Virgin Delta Southwest United American ULCCs Other Domestic Other International Source: OAG, Steer 5 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery SEA pre-COVID forecast was expected to reach 41m enplanements in 2045 Steer has developed a top-down, high Traffic Forecast 2019-2045 FAA vs Steer level pre-COVID traffic forecast for SEA Million enplanements based on: 50 46 Historical figures from T-100 45 Domestic segment using a linear 40 regression model based on U.S. GDP 41 35 International segment using on a linear regression model based on a 30 blended GDP (outbound US, Canada, 25 China, etc.) FAA Terminal Area Forecast January 20 2020 expected an increase of 2.4% p.a. 15 to 46m enplanements in 2045 as well 10 as an 8% increase in traffic in 2020. Steer's long-term linear model is 5 forecasting 41m enplanements in 2045 - (1.9% CAGR). 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044 Steer Long Term FAA Actuals Source: FAA, BTS, Steer 6 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery The Airport Industry's July 2020 SWOT Strengths Opportunities CARES Act relief provides unprecedented financial Available capacity permits allows some airport projects to support to industry be expedited during traffic lull Regional economic strength bodes well for post-vaccine Inexpensive money can provide refinancing and period and recovery investment savings Competitive airline market, with strong hub airlines, Increase in airport parkers could increase much-needed will likely lead to SEA outperformance nonaeronautical revenues Low fuel prices reducing aviation costs Contactless technologies potentially add efficiencies and Liberalization / global traffic diversification resiliency to airports and their passengers Second round of aviation relief legislation? Weaknesses Threats Historically deep and lengthy passenger declines Extended peak and/or second wave of Covid-19 challenge industry airport finances Lack of recovery "bounce" Pre-vaccine, social distancing period challenging for Reversal of trend of air service liberalization and hubs, which aggregate passengers into airline banks tightening of visa policy Airline parking of aircraft and furloughs likely to stretch Some business travel doesn't return out time of recovery Airline competition could decline with mergers and International traffic hit especially hard partnerships Connectivity to smaller airports in decline, exacerbating Airport & Airway Trust Fund in precarious shape to fund loss of smaller, regional jets aviation infrastructure once budget discipline returns 7 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery Domestic capacity is recovering faster and is at 50% of 2019 levels in July International departing capacity SEA Departing Seat Capacity as for Friday 17 July 2020 versus 2019 OAG % Change from SEA in July 85% lower than 20% 11% July 2019, however domestic capacity is experiencing a faster 0% 4% recovery with June being already -20% 60% vs 2019 levels and July -35 % expected to be approximately -40% -50% -55 % 50%. -60% -60% -71% Scheduled capacity is a very -85% -80% -88% -91% volatile measure at this time therefore the August metric could -100% Jan Feb Mar Apr May Jun Jul Aug be overestimated at the moment. Domestic International Among SEA airlines Jetblue , Spirit and Untied appear to be lagging Jan Feb Mar Apr May Jun Jul Aug the recovery curve while Alaska is Alaska 6% 5% 1% -64% -69% -52% -46% -30% Delta 11% 12% 1% -62% -72% -68% -54% -37% best positioned (see July Southwest -11% -8% -11% -24% -59% -53% -49% -39% recovered capacity) United -2% 4% 1% -76% -91% -91% -71% -54% American -17% -14% -14% -56% -80% -76% -55% -51% Spirit -13% -10% -6% -62% -96% -92% -81% -85% jetblue -2% 23% 8% -75% -84% -94% -71% -48% Source: OAG, Steer Frontier -6% 7% 34% -24% -71% -59% -32% -21% 8 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery Six variables to track over the post-lockdown to recovery period Coronavirus Regulatory Consumer Spread and Severity Restrictions Confidence Economy Airline Supply and SEA Airline Regional, National, and Aircraft in Service Competition Global GDP 9 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery SEA's key international markets served from SEA are poised to grow quickly once restrictions are lifted International destinations account for about COVID-19 Outbreak Map 11% of the total departing capacity in 2019. Cumulative Reported Cases (as of July 18 th , 2020) The main international destinations are Canada (29%) and the Chinese region Canada Russia 110 thousand (16% combined for Taipei, China, Hong Kong) 345 thousand Europe accounts for approximately 27% with the UK (9%) being the top European destination. UAE Iceland Ireland 4% France 3% 2% 4% Netherland s Canada 4% 29% Germany 5% Mexico 8% Japan 8% China South Korea 16% United Kingdom 8% United States Brazil India 9% 3.6 million 2.0 million 1.0 million Source: OAG, Steer 10 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery Domestic traffic to West Coast is a leading source of traffic at SEA Domestic traffic is concentrated on West Coronavirus in the U.S. (July 20, 2020, New York Times) Coast destinations and California in particular. The West Coast is beginning to experience growth again in its numbers, causing additional uncertainty. California accounts for approximately 27% of the departing capacity at SEA. Texas, a state hit hard recently, accounts for 6% of domestic traffic. 30% 25% 20% 15% 10% 5% 0% CA AK TX WA OR NV AZ CO HI IL NY UT MN GA ID MI FL DC MT MA MO NC PA TN MD IN LA OH WI NM NE SC OK KS WY Source: OAG, Steer 11 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery The impact of COVID to global economy will be strong and lasting The latest IMF projections United States GDP projections pre vs post COVID IMF June 2020 (June 2020) for the global % Change Index growth (2019=1) 6.0% 1.06 economy are assuming a strong 4.5% recession in 2020 across all 1.04 4.0% nations and a slow recovery path 2.4% 2.4% 2.1% 1.7% 1.02 2.0% to pre-COVID levels. 1.00 United States GDP is expected to 0.0% 0.98 decrease by 8% in 2020 and to -2.0% 0.96 recover by 4.5% in 2021. 0.94 -4.0% The chart on the right shows the 0.92 pre-COVID forecast as well as the -6.0% indexed growth in 2021. 0.90 -8.0% 0.88 -8.0% -10.0% 0.86 2019 2020 2021 Pre COVID IMF Base Case COVID Source: IMF, Steer 12 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery Post-COVID forecast is expected to recover to 2019 level by approximately 2024 We overlaid the new GDP assumptions for Traffic Forecast Pre Post COVID - Steer each nation on the linear regression Million Enplanements model used for the pre-COVID forecast in 45 41 order to obtain a 're-based' long term 40 traffic forecast (red dotted line). 39 35 Together with the impact of a slower economy we need to measure the impact 30 of 2020 lockdown and restrictions, 25 national closures and behavioural 20 changes. 15 We made assumptions at regional level on the speed of recovery to 2019 levels as 10 well as to the 2020 loss in traffic. 5 The chart on the left shows a couple of 0 potential Steer Scenarios, with Steer 2 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 assuming a prolonged impact of Steer PreCOVID Steer 1 Steer 2 ICAO 2 Recession restrictions with a potential second wave. ICAO's recent scenario is also presented as 2020 2021 2022 2023 2024 2025 a comparison. China Europe The table below shows a high level Asia summary of the different recovery path Canada Domestic assumed for each region. % of 2019 Traffic 0% - 20% 30%-50% 60% - 80% 90% - 100% Source: Steer 13 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery SEA Forecast Scenarios are in line with Steer Forecast for 2020 and 2021 SEA Baseline scenario is Steer COVID Forecast vs SEA Scenarios comparable to the Steer 1 Index growth (2018=1) 1.20 Forecast, decreasing of approximately 60% in 2020 at total annual level. 2021 is assumed to 1.00 be at 70% of 2019 levels. SEA 1 and SEA 2 scenarios are 0.80 slightly more pessimistic on 2020 traffic volumes; however, SEA 2 recovery trajectory seems more 0.60 in line with Steer 2 (prolonged effects of COVID/second wave). 0.40 0.20 0.00 2018 2019 2020 2021 2022 2023 2024 Steer 1 Steer 2 SEA Baseline SEA 1 SEA 2 Source: SEA, Steer 14 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery American partnering with Alaska and JetBlue to Better Compete in SEA and BOS SEA Market Share by Airline 2019 (Domestic & International) As airlines attempt to right-size capacity American and focus their attention to their hubs, 4% they will look at partnerships to extend their reach beyond markets they want to Others 20% serve individually. Alaska The American-Alaska partnership will 35% give American flyers access to Alaska's extensive West Coast network and Alaska flyers will gain access to American's broad international and Delta 41% domestic network. Source: Steer, Alaska Two American flights Bangalore (Fall 2020) and London-Heathrow (Spring BOS Market Share by Airline 2019 (Domestic & International) 2021) are examples where Alaska will feed domestic passengers to American American flights. 15% This partnership is like one between Others American and JetBlue in Boston. 37% In both markets, American competes Jetblue with Delta; the partnerships enable them 29% to "sell but not fly." Delta 19% 15 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery Spiral of reduced activity Lower levels of activity are likely under all Lower Airports Lower non- scenarios. aeronautical aeronautical Proactive measures are revenues revenues needed to prevent the situation from spiraling out of control. Outcome: Imbalance between costs, revenues, and Airlines levels of activity. Retail concessions & ground handlers Decreased air traffic movements Risk of higher unit costs Lower volumes calling into consideration and passengers. leading to more use of fixed equipment and running costs. Airlines/Passengers paying pressures on system. Some companies at risk of discontinuing higher charges business. Airline consolidation. Lower activity levels in the terminal and Regulators on the ramp Previous regulatory settlements or contractual arrangements may no longer be workable. 16 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery Actions to prevent the spiral Financial restructuring. Reshaping of charges in favor of traffic development. Airports reduce staffing levels and defer capex, Airports more flexible staffing arrangements. Seek to minimize or offset any cost increases Improved yield management of car resulting from additional screening parking and other services. requirements or similar. Identification of new revenue sources. Diversification to insure against risk events. Outcome: Rebalancing of costs, Airlines revenues, and levels of Ground handlers & retail concessions activity. Reopening regulatory settlements or concession agreements to reflect new market reality (e.g. on Changes to contractual arrangements. level of charges or capex obligations). Consolidation of airport activity (e.g. Passing higher unit costs on to airlines select mothballing retail units or sections of airports may even need to discount to support terminal, ground handling equipment) until traffic recovery. Regulators passenger levels return to 2019 levels. Airports may need to use a stabilization fund to bridge the gap. Additional transitional federal aid Reform of airport financial regulation (e.g., PFCs) 17 | 29 July 2020 SEA and the Aviation Industry: Managing the Uncertain Recovery Cruise Industry Articles Cruise Industry News July 20, 2020 Early for Protocols for U.S. Cruising, Says Donald Without guests sailing from U.S. ports and a surge in COVID-19 cases in some parts of North America, Arnold Donald, CEO of Carnival Corporation, said it's not the right time to be releasing health protocols. "We are all working on it. Internally, I assume (the CDC) are looking at things as well. The time will come when the U.S. society is in a better place to be socially gathering," he told Cruise Industry News "I think we've got to let this thing play out a bit so we are thinking about it in the right context at the right time. "Having said that, we are engaged with scientists and medical experts around the world, and we continue to reach out to the CDC as well, to make certain we are informed to develop protocols just as we did in Germany." Germany is where cruising is about to get going, as Carnival's AIDA brand is set to have three ships back sailing in August. "So when the time is right and we can function in a way that is in the best interest of public health, we are prepared to do so," Donald said, noting the industry will pool resources and ideas across companies. "We're not sailing any guests. We're monitoring, we're being informed by experts around the world. We work very closely with some of the best minds in the world. There is no reason to be talking about a lot of protocols if we're not sailing anybody." Meanwhile, research and best practices to battle COVID-19 are constantly changing. Donald pointed to temperature checks. "A lot of science will tell you the temperature checks are indeterminate and not necessarily a good screen. Now, a lot of people do them because it gets people comfortable. This stuff is constantly evolving. To be a chatterbox right now about protocols doesn't make a lot of sense." Donald said it was simple. That when the company sails again, it will be in a way that serves the best interest in public health, operating in a way that aligns with society. Travel Weekly July 13, 2020 Cruise lines say loyalty will lead them back During Carnival Corp.'s business update last week, a Wall Street analyst asked whether the brands that were particularly tarnished by media coverage in the early days of the pandemic, such as Princess Cruises, were suffering more in terms of bookings. 1 The answer was no. CEO Arnold Donald said that not only was Princess not doing worse than other Carnival Corp. brands but was "trending with all the other brands in the industry." Wall Street might not understand this, but it doesn't come as a surprise to travel advisors who understand how strong cruise line loyalty can be. "What we noticed in our sales numbers is that Princess has remained strong since that incident," said Vicky Garcia, COO of Cruise Planners, No. 24 on Travel Weekly's 2020 Power List. "It did not affect them. Princess has a very loyal following, so they almost went into a reactionary mode and said, 'I'm going to be even more loyal because they got so beat up.' They were so loyal they wanted to defend and support it." In fact, Cruise Planners data shows that Princess 2021 departures are up 11% over the same time last year and almost 40% versus the same time two years ago. It is this level of loyalty to brands and to cruise vacations in general that has cruise line executives confident that past cruisers will be the ones to bring the industry back once ships can start sailing again. It is that confidence that also prompted Donald to declare during the call with analysts that Carnival expects demand to be "more than adequate to fill ships in a staggered restart" with fewer ships sailing, citing the two-thirds of its global guests, 8 million each year, that are repeat cruisers, and the company's active database of nearly 40 million past guests over its nine brands. According to CLIA's 2020 State of the Cruise Industry Outlook, 82% of cruisers say they are likely to book a cruise as their next vacation. While that survey was done before the pandemic, UBS Investment Bank recently asked 94 cruisers in the U.S. about their "inclination to cruise again" and found that, while the sample is small, the survey showed that over 85% of respondents are "likely to cruise again," while less than 5% say they "will not or [were] unlikely to cruise again." The remainder say they "will not cruise for a long time." Of the cruisers surveyed, 56% expect to take a cruise in the next 18 months, and 16% said they expect to wait until there is a vaccine. Expectations for cruising this year remain somewhat low, the survey found, with 13% of those surveyed expecting to cruise in the next six months. A reliance on past cruisers and customer loyalty, however, will not long sustain an industry with more than 100 new ships on order through 2027, which Donald acknowledged. "That doesn't mean we don't have work to do once we start cruising with much larger volumes of capacity to attract new-to-cruise," he said. "Of course, we will have work to do, but right now the brands are strong, the bookings are encouraging, and with the staggered start we're going to have in the resumption of cruising, there should be plenty of pent-up, latent demand with previous cruise-goers to fill the ships." Washington Post July 6, 2020 Two cruise giants assembled a panel of health experts to give them a path back to sailing Two of the world's largest cruise operators have teamed up to assemble a panel of health experts to help them meet the coronavirus-related requirements of authorities around the world. 2 Royal Caribbean Group and Norwegian Cruise Line Holdings, which include several cruise lines, planned to announce the Healthy Sail Panel on Monday morning. The combined expertise of the group's members including epidemiologists and former leaders of federal agencies reveals how complex a feat it will be for major cruise lines, which stopped sailing in March, to stage a safe comeback. The timeline shows there are no quick answers: The group started meeting in June and hopes to deliver a plan by the end of August. Major cruise lines that operate in the United States have paused operations until mid- to late September. "Obviously everybody wants to start, but we've made it very clear we won't start until we and the experts and authorities agree it's the appropriate thing to do," said Richard Fain, chairman and CEO of Royal Caribbean Group. "And we've taken the steps to try and enable ourselves to do that." Both Royal Caribbean and Norwegian had been working to bring in expert advisers and decided to join forces, although they are fierce competitors in all other areas. "We want to make sure that we do everything possible, without exception, without any shortcuts, [to show] that cruising is safe," said Frank Del Rio, president and CEO of Norwegian Cruise Line Holdings. "And we think that the panel is going to help inform us in how to do that." Co-chairs of the panel are former Utah governor Mike Leavitt, who served as administrator of the Environmental Protection Agency and secretary of Health and Human Services under President George W. Bush, and Scott Gottlieb, former commissioner of the Food and Drug Administration under President Trump. Neither is new to cruising; both said they have sailed before. The group also includes Julie Gerberding, a former director of the Centers for Disease Control and Prevention who is now chief patent officer at the pharmaceutical company Merck; Helene Gayle, who spent 20 years at the CDC and is now CEO of the Chicago Community Trust, and other experts in public health, infectious disease, pandemic preparedness, epidemiology, hospitality and cruise operations. A no-sail order extended by the CDC in April expires July 24; it calls for cruise lines to submit detailed plans to "prevent, mitigate and respond to the spread of covid-19 on board cruise ships." Leavitt said the expert group has broken its work into two phases, first finding improvements that cruise lines can use as they craft their responses for the CDC and later looking for innovations that could require more time and research. "All of the cruise lines have to present plans, and so we want to get information to them as quickly as possible that's reliable [and] scientifically based so that information can populate the plans that they submit to the CDC and then we'll keep working," he said. "Because obviously this situation is evolving and it will require us to iterate as we go and as science develops, and we see this as not just a shortterm commitment but a long-term need." A Washington Post analysis in April found the virus infected travelers on 55 ships worldwide and killed at least 65 people, though the full impact is unknown. 3 In its no-sail order, the CDC says cruise travel "markedly increases the risk and impact of the covid-19 disease outbreak within the United States," and an agency official has called cruise ships "uniquely vulnerable" to the virus because of tight quarters, communal eating and entertainment and passenger demographics. Gottlieb said he believes the confined environment comes with risks but could also provide an opportunity to create a protective bubble around passengers and "substantially" reduce their risk of getting sick. "We can control for all the risk factors," he said. "And so if the commitment is there to put in place the level of protection whether it's testing, [high-efficiency particulate air] filters, mechanisms for social distancing, deep cleanings on the ships, which I believe there is we feel there's an opportunity to create a safer environment and a more controlled environment." The panel plans to share its findings and recommendations with other cruise lines and the industry as a whole. "Health and safety is the highest priority for all CLIA cruise line members, as demonstrated by this initiative on the part of two of our largest members," Kelly Craighead, president and CEO of Cruise Lines International Association, said in a statement. "We commend the efforts of all of our members, large and small, who are working tirelessly to develop appropriate protocols based on input from health authorities and medical experts in the U.S. and abroad." Leavitt said he expects the panel's work to apply even beyond cruising, considering the various types of venues found on ships. "Clearly there are circumstances that are unique to the cruise industry in the same way that there would be conditions that are unique to a basketball game or an apartment building or a dorm or a restaurant; they all have unique settings," he said. "The reason this presents an opportunity is because there are retail stores on a cruise ship, there are restaurants on a cruise ship, there are recreational areas on a cruise ship, there's a motel on a cruise ship." Asked how challenging it had been to watch the panel examine his company's operations and start to offer feedback, Royal Caribbean's Fain praised their work and said it had been thrilling to see professionals in action. But he also brought up a recent medical screening he experienced. "I will say that was more fun," Fain joked. 4 Extending Cruise Ban, C.D.C. Slams Industry for Spreading Coronavirus In a scathing order extending the current "no sail" order on U.S. cruise lines, the agency said it spent 38,000 hours managing the outbreaks on ships. July 16, 2020 https://www.nytimes.com/2020/07/16/travel/coronavirus-cruise-ban-extended.html As the coronavirus pandemic raged around the world, cruise ship companies continued to allow their crews to attend social gatherings, work out at gyms and share buffet-style meals, violating basic protocols designed to stop the spread of the highly transmissible virus, the Centers for Disease Control and Prevention said in a scathing 20-page order, released Thursday, that extended the suspension of cruise operations until Sept. 30. In a rebuke of the cruise ship companies, Robert R. Redfield, the director of the C.D.C., blamed them for widespread transmission of the virus. The C.D.C. said there were 99 outbreaks aboard 123 cruise ships in United States waters alone, the agency said in the statement. From March 1 until July 10, 80 percent of the ships in the C.D.C.'s jurisdiction were affected by the coronavirus. The agency said there had been nearly 3,000 suspected and confirmed cases and 34 deaths on ships in U.S. waters. As of July 3, nine ships still had ongoing or resolving outbreaks. The C.D.C. spent at least 38,000 hours managing the crisis, the order said. Public health authorities had to do contact tracing for some 11,000 passengers, more than the number of contacts identified from airplane flights since the beginning of the pandemic, the C.D.C. said. The cruise industry has struggled to manage the coronavirus pandemic since the start, when the Diamond Princess, part of the cruise giant Carnival Corporation, moored in the Japanese harbor of Yokohama, Japan, amid an outbreak that eventually infected 712 people and killed nine of them. Even as warnings were issued about the dangers of cruise-ship travel, passengers kept boarding and ships kept sailing. Though more and more cruise passengers fell ill, companies continued their voyages, offering entertainment that included live music and pool parties. The industry ultimately suspended operations in mid-March, but as ships made their way to port, many passengers and crew were stranded around the world, as countries refused the ships entry. One ship arrived in Fort Lauderdale with four dead passengers on board. Many of those passengers who were allowed to disembark from contaminated ships "traversed international airports, boarded planes and returned to their homes," the C.D.C. said, potentially spreading the virus further. The cruise industry had already voluntarily suspended operations until Sept. 15, and many companies withdrew their ships from United States waters, removing them from the C.D.C.'s jurisdiction. But the order from Dr. Redfield underscores the gap between the industry and the public health agency. The companies cannot begin to sail again until they come up with cohesive plans for prevention and mitigation of the illness. Cruise ship companies submitted plans on how to safely evacuate crews, but nearly all the companies failed to meet the basic requirements necessary to stop the spread of the coronavirus, the C.D.C. said. 5 Crew members still bunked together and shared bathrooms. Even ships that seemed to have gone a month without any coronavirus cases had crew members who tested positive upon reaching shore, Dr. Redfield said. One company, Norwegian Cruise Lines, said it felt it had exceeded recommended C.D.C. guidance, because crew members were not just asked but "encouraged" to wear face coverings, the order said. Disney acknowledged that some of its asymptomatic-infected crew members had not quarantined until after the results of shipwide testing came in. The companies created a task force to come up with recommendations on how to safely sail, but according to the C.D.C., the group will not produce its findings for several months. If unrestricted cruise-ship passenger operations were permitted to resume, it would put "substantial unnecessary risk" on communities, health care workers, port personnel and federal employees, the order said, as well as placing passengers and crew members at increased risk. The agency's previous no-sail order was set to expire July 24. Disney said only one of its four ships, the Disney Wonder, had an outbreak on board but only after passengers had disembarked. The company tested every crew member on board and isolated non-essential crew to their cabins for three weeks in April. Half the 174 crew who tested positive had no symptoms, the company said. The ship has not had a positive case since May 8, Disney said. Royal Caribbean and Norwegian Cruise Line, whose failures were specifically cited in the C.D.C. document, released statements in response to the order that did not specifically address the allegations. Norwegian said it canceled trips through September, as well as cruises embarking from or calling on ports in Canada in October. "We continue to partner with the C.D.C. and other authorities to mitigate the impact of COVID-19 by prioritizing the health and safety of our passengers and crew," the company said. Royal Caribbean said it would suspend operations through September to comply with the order. "The health and safety of our guests, crew and the communities we visit is our top priority," the company said. Carnival Cruises said that it had already extended its suspension through September. But the company plans three voyages in Germany next month through a European line, and Italy trips are also expected soon, a spokesman said. Bari Golin-Blaugrund, a spokeswoman for the Cruise Line Industry Association, a trade organization that represents most of the major cruise companies, released a statement that did not address the C.D.C. criticisms. "As we continue to work towards the development of enhanced protocols to support the safe resumption of cruise operations around the world, we look forward to timely and productive dialogue with the C.D.C. to determine measures that will be appropriate for ocean-going cruise operations to resume in the United States when the time is right," she said. 6 WTTC and Carnival Corporation Present Unique COVID-19 Scientific Summit July 6, 2020 https://www.prnewswire.com/news-releases/wttc-and-carnival-corporation-present-unique-covid-19- scientific-summit-301088439.html WTTC to collaborate with world's largest cruise company on convening leading global scientists and health experts on July 28 for a virtual public forum on the latest insights and best practices for living in a world with COVID-19 The World Travel & Tourism Council (WTTC) together with the world's largest cruise company, Carnival Corporation & plc (NYSE/LSE: CCL;NYSE: CUK) will host the WTTC/Carnival Corporation Global Science Summit on COVID-19. Set for July 28, this will be a virtual scientific summit focused on COVID-19 and the 'new normal'. Taking place from 1400 hours to 1730 GMT (10 a.m. to 1:30 p.m. EDT) on Tuesday, July 28, the summit, which is open to the public, will share the latest scientific knowledge and evidence-based best practices related to prevention, detection, treatment and mitigation of COVID-19. The joint summit will see global tourism leaders, WTTC Members, government agencies, destination partners, trade and private businesses, share the very latest science and medical evidence that can be used to inform practical, adaptable and science-based solutions for mitigating and living with COVID-19. The WTTC/Carnival Corporation Global Science Summit on COVID-19, is the latest initiative to continue building global understanding concerning COVID's impact on society, including travel and tourism. The Summit will consider practices from the leading scientists and health experts for mitigating the spread of the virus. This unique virtual Summit is hosted by WTTC, which represents the global Travel & Tourism private sector, and Carnival Corporation, the world's largest cruise company, and is free to attend. Summit convenes global scientists and health experts at forefront of COVID-19 fight The summit will bring together a robust lineup of world renowned medical, epidemiology and public health experts to explore and share the latest best practice on the science of COVID-19 and how best to address the many practical questions people have about the disease. Speakers and panelists represent a diverse range of science, research, clinical, academic, policy and business backgrounds, including amongst others, members of Scientists to Stop Covid-19, who have volunteered to participate. For additional information on the program and panelists, see the registration site at CovidScienceSummit.com Gloria Guevara, WTTC President & CEO, said: "I was excited when Arnold, on behalf of Carnival Corporation, approached me with this idea. This event will be a powerful platform for harnessing the best thinking from across all fields of knowledge in the public and private sectors. The science of this virus is rapidly evolving and these real-time insights will be invaluable in helping us determine evidencebased protection and mitigation measures to combat COVID-19. They will also help drive global 7 alignment and collaboration on the frontiers of science and policy, which is critical to the survival of this important sector." "COVID-19 has had a crushing global socio-economic impact and is threatening the jobs of millions of people whose very livelihoods depend upon a thriving Travel & Tourism sector for their survival." Summit will discuss practical approaches to living in a world with COVID-19. The event will feature a series of panels, each focusing on a critical area of science surrounding COVID-19 and will include best practices from different industry sectors and world regions to control and limit the spread of COVID-19. Panels will include a mix of science-based debates and discussions sharing the latest thinking on the following key topic areas: Epidemiology: Incubation and peak infectivity periods for SARS-CoV-2; disease progression from exposure to illness; and symptom variability among different individuals and groups. Transmission: How, when and where SARS-CoV-2 spreads; significance of environmental transmission; guidelines for mitigating spread. Screening and Testing: Availability and accuracy of current testing methods; viable and cost effective ways to detect illness and effectiveness of screening using temperature and health questionnaires. Therapeutics: Status of vaccine development; available and approved SARS-CoV-2 treatment protocols; the role of cytokine storms; and profiles of COVID-19 recovery. Practical Risk Mitigation: Measures to mitigate the risks of social gatherings; balancing the benefits and risks of social gatherings; the role of testing, contact tracing, and managing the psychology of fear. Arnold Donald, President & CEO of Carnival Corporation, is a member of the WTTC Executive Committee and its Vice Chair for North America. Carnival Corporation designed and is producing the Summit in close coordination with WTTC leadership. "Our highest responsibility and top priorities are compliance, protecting the environment and the safety, health and well-being of our guests, our crew members and the people in the communities we visit," said Donald. "Throughout the pause in our guest operations, we have been consulting and assembling the best minds in medical science, public health and infectious disease control. We are grateful to bring together a select group of science and medical experts who bring such relevant insight into COVID-19 for the public to hear. Hopefully, this Summit will be an efficient way for attendees to become more informed about COVID-19 in the space of just a few hours." 8 STATE OF THE CRUISE INDUSTRY V2.0 07.22.20 WORLDWIDE CRUISE PASSENGERS 35,000 THE INDUSTRY HAS HAD DECADES OF CONTINUOUS AND DIVERSIFIED GROWTH ACROSS ALL MARKETS DESPITE WARS, INFECTIONS (SARS, NOROVIRUS, ETC.), 30,000 ACCIDENTS, RECESSIONS (2020 WERE PRE-COVID PROJECTIONS) 25,000 20,000 15,000 10,000 5,000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 North America Europe Asia Bermello, Ajamil & Partners, Inc. HOW IT BEGAN - DIAMOND PRINCESS A MONTH OF TRAUMA JANUARY 20 - SAILED FROM YOKOHAMA JANUARY 25 - PASSENGER DISEMBARKS IN HONG KONG FEBRUARY 1 SAME PASSENGER TESTS POSITIVE FEBRUARY 3/4 SHIP WAS DUE TO SAIL FROM YOKOHAMA AND PLACED IN QUARANTINE FEBRUARY 16 SOME PASSENGERS DISEMBARK FEBRUARY 20 WHO DECLARES SHIP ACCOUNTS FOR 50% OF THE WORLDS' CASES FEBRUARY 24 ALL PASSENGERS DISEMBARK MARCH 1 EVERYONE DISEMBARKS 712 TESTED POSITIVE OF 3,711 (19.2%) 12 DEATHS Bermello, Ajamil & Partners, Inc. TIMELINE N JAPAN QUARANTINES RESTRICTIONS QUARANTINED IN W O SIZE T D U ES SH LIMITS SHIP ISE LIN U CR CHINA TRAVEL US PRINCESS CANADA DIAMOND CRUISE SHIP WITH COVID CASES LAND SOURCE JOHNS HOPKINS Bermello, Ajamil & Partners, Inc. GOVERNMENT RESPONSE MARCH 9 USCDC ISSUES WARNING ABOUT TRAVEL ON CRUISE SHIPS MARCH 12-14 NORWAY, MONACO, SPAIN, SINGAPORE, OTHERS STOP CRUISE SHIPS MARCH 13 CANADA PROHIBITS SHIPS WITH MORE THAN 500 PERSONS FROM TOURISM ACTIVITIES MARCH 15 AUSTRALIA BANS SHIPS FROM OTHER COUNTRIES MARCH 31 - US DEPARTMENT OF STATE "DO NOT TRAVEL" ISSUED APRIL 6 CANADA PROHIBITS SHIPS WITH MORE THAN 12 APRIL 10 USCDC EXTENDS THE NO SAIL ORDER UNTIL MID JULY (100 DAYS) MAY 15 SEYCHELLES AND A FEW OTHERS BANS ALL SHIPS UNTIL 2022 MAY 29 CANADA EXTENDS CRUISE SHIP BAN THROUGH OCT. 31ST JUNE 16 CRUISING RESUMES IN EUROPE (NORWAY) JUNE 30 EU/EEA ISSUES SAILING RESTART ADVICE JULY 10 UK FCO ADVICES AGAINST CRUISING JULY 16 USCDC EXTENDS THE NO SAIL ORDER UNTIL OCTOBER 1 Bermello, Ajamil & Partners, Inc. PANDEMIC - BY THE NUMBERS SHIPS 40 SHIPS HAD CASES PRIOR TO SHUTDOWN 270 SHIPS IN CLIA MEMBER COMPANIES AND 423 IN TOTAL 14.9% OF CLIA SHIPS HAD CASES OR 9.5% OF TOTAL SINCE THEN 123 SHIPS IN TOTAL REPORTED CASES1 45.6% OF CLIA SHIPS HAD CASES OR 29.1% OF TOTAL INFECTIONS TOTAL 2,973 (CREW AND PASSENGERS)1 INFECTION RATE 5.14% OF THE TOTAL OF THE INITIAL 40 SHIPS OR 0.187% OF THE TOTAL AT SEA POPULATION VS 0.273% (WORLD)2 OR 1.185% (USA)2 DEATHS TOTAL - 34 DEATHS1 DEATH RATE OF INFECTED 1.14% VS 4.12% (WORLD AVERAGE)2 OR 3.62% (USA)2 OR 4.74% (KING COUNTY)2 (1) Period: March 1 to July 10, 2020 Source: CDC (2) As of July 22, 2020, Source: Johns Hopkins University Dashboard Bermello, Ajamil & Partners, Inc. CRUISE INDUSTRY RESPONSE SHUTDOWN OF OPERATIONS MARCH 11 VIKING ANNOUNCES CLOSING OPERATIONS UNTIL MAY 1 MARCH 12 PRINCESS, VIRGIN, DISNEY, AVALON, AMAWATERWAYS, WINDSTAR AND CELESTYAL MARCH 13 COSTA, AIDA, FRED OLSEN, CMV, MSC, NCL, MARCH 14 RCCL, P&O, CARNIVAL AUSTRALIA FINANCIAL NCL, RCCL AND CC HAVE ALL LOADED UP WITH CASH EQUITY WITH CONVERTIBLE SHARES AT VERY LOW PRICE POINTS DEBT - WORSE THAN JUNK BOND STATUS CARNIVAL - 11.5% NCL - 12.5%, 10.15%, 10.75% RCCL BLEND 10.875% AND 11.5% (MAY); BLEND 9.125% AND 4.25% (JUNE) RESTRUCTURING OF SHIP BUILDING LOANS EXTENDING MATURITY ALL LINES REPORT BETWEEN 12 TO 18 MONTHS OF LIQUIDITY WITHOUT NEW REVENUE MOST OF THE DEBT HAVE TERMS FROM 2021 TO 2023 REPATRIATING CREW STILL ONGOING NOW -LINES FOCUSING ON REMOVING THE CDC "NO SAIL" ORDER Bermello, Ajamil & Partners, Inc. FINANCIAL SITUATION RAPID CAPITALIZATION BURN RATE $12.00 CAPITALIZED COMPANIES $650-$900 M / MONTH WITH $23 BILLION JULY 2021 ($16 BILLION EXPENSIVE DEBT) MOST DEBT MATURES FROM 2021 TO 2023 $10.00 CC ON THE MARKET NOW FOR MORE MONEY BURN RATE $275 M / MONTH $8.00 BURN RATE $150 M / MONTH NOV 2021 US$Billions $6.00 MID-MAY $4.00 MID-APRIL 50% STAFF REDUCTION 26% STAFF REDUCTION MID-MARCH 20% SALARY REDUCTION $2.00 MAY 1 20% STAFF REDUCTION $0.00 NCL RCCL CC New debt Convertible debt Restructure of ship debt Equity (shares) Assumes: NCLH closes on latest shares and debt offering Sources: Multiple and BoA Bermello, Ajamil & Partners, Inc. INDUSTRY PRE COVID FINANCIAL PERFORMANCE MSC CC $4,000 $3,620 M $25,000 $20,825 M $3,500 $3,081 M $18,881 M Total Revenue (millions) $20,000 $17,510 M $3,000 $15,714 M $16,389 M $2,537 M $2,500 $2,181 M $15,000 $2,033 M $2,000 $10,000 $1,500 $1,000 Total Revenue (millions) $5,000 $500 $ $ 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Total Operating Expenses Operating Income Net Income Total Operating Expenses2019 US$6.5 BILLIONOperating Income Net Income COMBINED NET INCOME NCLH RCCL $7,000 $6,462 M $12,000 $10,951 M $6,055 M $6,000 $5,396 M $9,494 M Total Revenue (millions) Total Revenue (millions) $10,000 $4,874 M $8,299 M $8,496 M $8,778 M $5,000 $4,345 M $8,000 $4,000 $6,000 $3,000 $4,000 $2,000 $1,000 $2,000 $ $ 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Total Operating Expenses Operating Income Net Income Total Operating Expenses Operating Income Net Income Bermello, Ajamil & Partners, Inc. HOW DOES THE INDUSTRY RETURN? FUNDAMENTALS TOURISM IS A HIGHLY DESIRABLE ACTIVITY IN THE CONTEXT OF SAFETY, WHAT IS PERCEIVED AS LESS SAFE: TODAY THE ANSWER IS CRUISE IN PRACTICAL TERMS, WHICH CAN BE MOST CONTROLLED CRUISE THE CRUISE INDUSTRY HAS OUTPERFORMED ALL TOURISM PRODUCTS DURING PAST CRISES Bermello, Ajamil & Partners, Inc. STAGES PANDEMIC SHUTDOWN STARTUP RECOVERY PRE VACCINE PERIOD CUSTOMER DEMAND GOVERNMENT ACCEPTANCE SOCIAL SEPARATION LOAD FACTORS RESTRICTIONS POST VACCINE PERIOD MITIGATION FACTORS CUSTOMER DEMAND GOVERNMENT ACCEPTANCE INDUSTRY CAPACITY CAPITALIZATION LOAD FACTORS Bermello, Ajamil & Partners, Inc. RECOVERY DRIVERS IMMEDIATE PRICING MITIGATION (STEPS TO PREVENT OUTBREAKS) CONSUMER OPERATIONAL ASPECT OF RESTARTING DEMAND THE INDUSTRY HAS BEEN GREAT DEALING WITH ONE IMMEDIATE GOVERNMENTAL ISSUEANDAT A TIME; THIS PORTS OF ENTRY VIGILANCE COMMUNITY TIME THE REGULATIONS SYSTEMS TO PROTECT PUBLIC HEALTH THREE ARE INTRINSICALLY SUPPORTING CUSTOMERS CONNECTED IMMEDIATE PRIORITY TO PAY HUGE DEBT LOADS ABILITY TO ACCESS TO CONSUMMATE SHIP BUILDI NG FOREIGN GOVERNMENT INTERVENTION TO CAPITAL SUPPORT SHIPYARDS MID TERM DEVELOPMENT AC CESS TO CAPITAL FOR INVESTMENTS APPROACH AB ILITY TO GUARANTEE REVENUES RELIANCE ON THIRD PARTIES OR PE Bermello, Ajamil & Partners, Inc. CRUISE INDUSTRY RETURN TO SERVICE ANNOUNCEMENTS MAY 27, 2020 JULY SEP NOV GENTING CRUISES RCCL (CHINA) MSC RCCL (REST OF WORLD) CUNARD (3 OF 3 SHIPS) TUI CRUISES CCL (8 OF 27 SHIPS, NA) P&O AUSTRALIA ASTRO OCEAN (CHINA) NCLH (6 OF 27 SHIPS) BAHAMAS PARADISE CUNARD (2 OF 3 SHIPS) PRINCESS HURTIGRUTEN (NORWAY) MARELLA (3 OF 5 SHIPS) DISNEY (4 OF 4 SHIPS) VIRGIN P&O CRUISES COSTA AIDA JUNE AUG OCT DEC NSO 07.25 CDC Bermello, Ajamil & Partners, Inc. CRUISE INDUSTRY RETURN TO SERVICE ANNOUNCEMENTS JUNE 8, 2020 JULY SEP NOV RCCL (CHINA) TUI CRUISES GENTING CRUISES CUNARD (3 OF 3 PONANT RCCL (REST OF WORLD) ASTRO OCEAN (CHINA) CCL (8 OF 27 SHIPS, NA) SHIPS) BAHAMAS PARADISE NCLH (6 OF 27 SHIPS) VIKING CUNARD (2 OF 3 SHIPS) PRINCESS HURTIGRUTEN (NORWAY) PAUL GAUGUIN (TAHITI / VIRGIN SEADREAM (NORWAY)) FRENCH POLYNESIA) DISNEY (4 OF 4 SHIPS) COSTA P&O MSC AIDA MARELLA (3 OF 5 SHIPS) JUNE AUG OCT DEC NSO 07.25 CDC Bermello, Ajamil & Partners, Inc. CRUISE INDUSTRY RETURN TO SERVICE ANNOUNCEMENTS JUNE 17, 2020 JULY SEP NOV NCLH (ALASKA) RCCL CCL CUNARD DISNEY ASTRO OCEAN (CHINA) MARELLA BAHAMAS PARADISE COSTA CUNARD PAUL GAUGUIN (TAHITI / MSC NCLH (ALL OTHERS PULLMANTUR FRENCH POLYNESIA) GENTING CRUISES AIDA MINUS CAN & NE) HURTIGRUTEN (NORWAY) PAUL GAUGUIN (SOUTH VIKING PRINCESS CRUISES SEADREAM (NORWAY) PACIFIC CRUISE & MARITIME VIRGIN TUI CRUISES P&O PONANT JUNE AUG OCT DEC 09.15 NSO 07.25 CDC CLIA VOLUNTARY Bermello, Ajamil & Partners, Inc. CRUISE INDUSTRY RETURN TO SERVICE ANNOUNCEMENTS JULY 23, 2020 JULY SEP NOV TUI (GERMANY, 1 OF 7 SHIP, 60%) HAPAG-LLOYD MSC (ITALY, 10 OF 18 NCLH (GERMANY, 2 OF 5, 60%) SHIPS) WINDSTAR (TAHITI, 2 RCCL PAUL GAUGUIN (TAHITI / COSTA (ITALY, 5 SHIPS, SHIPS) CCL CUNARD HURTIGRUTEN FRENCH POLYNESIA, 60%) 50%) DISNEY (NORWAY, 1 OF 16 SHIPS, GENTING CRUISES AIDA (GERMANY, 3 30%) (TAIWAN, 1 SHIP, 50%) VIKING SHIPS, 50%) PRINCESS SEADREAM (NORWAY, PONANT (FRANCE, 6 OF C&MV MARELLA (GREECE, 1 11 SHIPS) VIRGIN 2 OF 2 SHIPS) SHIP, 30%) P&O BLACK SEA CRUISES BAHAMAS PARADISE (RUSSIA, 1 SHIP, 60%) CARNIVAL (AUSTRALIA) JUNE AUG OCT DEC 09.15 NSO 07.25 CDC NSO 10.01 CLIA VOLUNTARY CDC Bermello, Ajamil & Partners, Inc. Bermello, Ajamil & Partners, Inc. A BLUEPRINT FOR A HEALTHY CRUISE INDUSTRY HOLISTIC PLAN A THREE LEGGED STOOL BRING BACK PROTECT PORT CUSTOMERS COMMUNITIES THE BLUEPRINT ENSURE INVESTORS Bermello, Ajamil & Partners, Inc. THE BLUEPRINT HAS TO BE A COLLABORATIVE EFFORT BETWEEN CRUISE LINES AND COMMUNITIES AND THEIR PORTS CRUISE LINES NEED TO SET A STANDARD TO ATTRACT AND PROTECT THEIR CUSTOMERS AND CREW PORTS NEED TO SET A STANDARD TO PROTECT THEIR COMMUNITIES THERE IS A VALUE PROPOSITION IN DELIVERING THE HEALTHIEST EXPERIENCE THAT ADDED VALUE NEEDS TO BE USED TO DELIVER THE PRODUCT Bermello, Ajamil & Partners, Inc. KEYS TO IMPLEMENTATION OF PROTOCOLS JOURNEY SCALABLE SETS A STANDARD OF CARE OR OUTCOME Bermello, Ajamil & Partners, Inc. THE CRUISE JOURNEY PRE EMBA RKATION (HO ME) EMBAR KATION (TERM INAL) ELECTRONIC HEALTH CRU ISE QUESTIONNAIRE LINKED (ONBO ARD) TO CHECK-IN AND ONBOARD SYSTEMS PASSENGERSCREENING HEALTH SCAN AREA SHOR ESIDE ON COMMUNICATION OF TERMINAL ENTRY (PO RT) CHECK-IN, ONBOARD THERMALSCANNING INTEGRATEDONBOARD AND PORT PROTOCOL FILTRATION / AND HEALTH ITEMS TERMINAL FILTRATION / SANITIZATION AIR DISEMBARKATION SANITIZATION SYSTEM SYSTEM CONTINUOUS (TERMINAL ) CRITERIA - KILL 99.9% KILLING OF 99.9% OF HEALTH ASSURANCE PATHOGENS-60 MIN PATHOGENS COMMUNICATION AS EXPANDTERMINAL TIME PART OF CLEARANCE TO KILL GERMS SURFACE/HIGHTOUCH SECONDARY HEALTH DISINFECTION SHOREX / VENUE / HEALTH ASSURANCE INSPECTION AREA TRANSPORT HEALTH COMMUNICATION AS TERTIARY UVLIGHT LAUNDRYSANITATION FLEX STANDARDS PART OF CLEARANCE SCAN ON GANGWAY ENTRY / BOARDING COMMUNICATE COMMUNICATE PORT PUBLIC HEALTH CHECKS ONBOARD AND PORT HEALTH PROTOCOL / SCANS COMMUNICATE HEALTH PROTOCOL ONBOARD HEALTH REBOARD HEALTH CONSUMER HEALTH PROTOCOL MEDICAL / HEALTH CHECKS / SCANS COMMUNICATION OFFICER STANDARDS Bermello, Ajamil & Partners, Inc. BRING BACK PROTECT PORT CUSTOMERS COMMUNITIES ENSURE INVESTORS BRINGING BACK THE CUSTOMER CONSUMERS ARE EAGER TO VISIT FRIENDS AND RESEARCHING VACATIONS SOURCE: SURVEY CNBC/PENGUIN, 1,249 RESPONDENTS, 05.27.20 Bermello, Ajamil & Partners, Inc. TRAVEL PERCEPTION CONSUMERS RANK LEISURE TRAVEL AS THE NUMBER ONE THING THEY MISS (ACROSS COUNTRIES, AGE GROUPS, AND INCOME LEVELS) 36% OF US CONSUMERS SAY THAT THEY CAN SEE THEMSELVES GOING ON A VACATION THIS SUMMER AMERICAN POPULATION IS READY TO TRAVEL NOW OR ARE COMFORTABLE TRAVELING BEFORE A VACCINE IS AVAILABLE 7% WILLING TO TRAVEL INTERNATIONALLY, 72% PREFER TO DRIVE AND 9% WOULD TAKE A CRUISE Bermello, Ajamil & Partners, Inc. CRUISE PERCEPTION RISK THREE KEY CONSUMER GROUPS; EACH GROUP RESPONDS DIFFERENTLY TO RISK CRUISERS VIEW A CRUISE AS A "SAFE" HOLIDAY DURING TIMES OF OUTBREAKS, STUDIES SHOW THAT CRUISERS TRUST MEASURES TAKEN ARE APPROPRIATE, ABOVE ALL, CRUISERS ARE RESILIENT AND LOYAL. POTENTIAL CRUISERS GROUP MOST IMPACTED BY COVID-19 CONCERNS. THIS GROUP IS KEY TO LONG TERM GROWTH AND STABILITY. REGAIN THIS GROUP BY THE INDUSTRY SHARING MEASURES TAKEN TO PROTECT PASSENGERS, CREW AND SHORESIDE STAFF TIME AND REASSURANCE REQUIRED FOR THIS GROUP TO CRUISE. NON-CRUISERS THIS GROUP REJECTS CRUISING BEYOND HEALTH CONCERNS. Source: Navigating Uncertainty: Tourists' Perceptions Of Risk In Ocean Cruising Report, May 2019 Bermello, Ajamil & Partners, Inc. YOUNGER INDIVIDUALS ARE MORE LIKELY TO TRAVEL SOONER THAN OLDER PEOPLE 75% OF PEOPLE BETWEEN 18 AND 40 SEE THEMSELVES TRAVELING BY AIR WITHIN 12 MONTHS; 47% SEE THEMSELVES ON A CRUISE IN THE SAME PERIOD. Bermello, Ajamil & Partners, Inc. FREQUENT TRAVELERS ARE MORE LIKELY TO RETURN SOONER Bermello, Ajamil & Partners, Inc. PROPENSITY TO CRUISE THE MAJORITY STILL ASSERT THAT THEY WILL NOT TRAVEL UNTIL THINGS ARE "NORMAL" 70% OR MORE ACROSS COUNTRIES BELIEVE THAT IT IS IRRESPONSIBLE TO TRAVEL UNTIL THE VIRUS IS UNDER CONTROL MANY ARE WAITING FOR THEIR GOVERNMENTS TO ANNOUNCE THAT IT IS ACCEPTABLE OTHERS ARE HOLDING OUT UNTIL A VACCINE IS AVAILABLE Bermello, Ajamil & Partners, Inc. CRUISE BOOKINGS FUTURE BOOKINGS ARE STABILIZING BOOKING VOLUME IN MARCH 2020 FOR 2021 WAS UP 9% VERSUS THE SAME TIME LAST YEAR. THAT INCLUDES PEOPLE APPLYING THEIR FUTURE CRUISE CREDITS FROM SAILINGS THAT WERE CANCELLED THIS YEAR, BUT STILL SHOWS A SURPRISING RESILIENCE IN DESIRE TO BOOK / TAKE A CRUISE. COMPANIES ARE REPORTING IN MARCH, CARNIVAL CORP. REVEALED THAT ADVANCE BOOKINGS FOR THE FIRST HALF OF 2021 WERE "SLIGHTLY LOWER" THAN THE PREVIOUS YEAR. EARLY MAY, RCCL SAID THE NUMBER OF BOOKINGS MADE SO FAR FOR NEXT YEAR IS "WITHIN HISTORICAL RANGES WHEN COMPARED TO SAME TIME LAST YEAR," WITH PRICES HIGHER COMPARED TO 2020. MID MAY, NCLH SAID BOOKINGS FOR 2021 WERE WITHIN "HISTORICAL RANGES" AND THE MAJORITY WERE "GOOD OLD CASH BOOKINGS" AS OPPOSED TO FUTURE CRUISE CREDITS DUE TO CANCELED SAILINGS CANCELLATIONS ARE REDUCING AS OF APRIL 2020, CRUISE LINES BEGAN TO SEE A STEADY REDUCTION IN CANCELLATIONS FARTHER OUT, AS MANY PASSENGERS SEEM TO JUST BE WAITING TO SEE THE SITUATION PRIOR TO THEIR FINAL PAYMENT; CANCELLATION RATE FOR Q4 2020 IS BACK TO BEING ROUGHLY NORMAL, AND Q3 HAS COME DOWN. 76% OF THOSE WHO HAVE CANCELLED THEIR CRUISE ARE TAKING THE OPTION FOR A FUTURE CRUISE CREDIT OF 125% OF THE VALUE, RATHER THAN GETTING 100% REFUND TODAY. Source: UBS Report, March 30, 2020 & Cruise Lines (RCCL & Carnival) Bermello, Ajamil & Partners, Inc. AIRLIFT HOW WILL PASSENGERS GET TO SEATTLE? (MAY 2021) -48.4% -52% (Dec '19 Apr '20) -88.9% (Dec '19 Apr '20) (Dec '19 Apr '20) CRUISE COULD ACTUALLY PROVIDE A BOOST TO SEA-TAC TRAFFIC Bermello, Ajamil & Partners, Inc. THE LONG-TERM IMPACT OF COVID VESSEL ORDER BOOK 30 28 26 25 23 22 20 20 19 17 16 15 15 15 15 14 14 13 13 13 11 11 10 10 10 10 10 9 8 8 8 8 8 8 7 7 6 6 6 5 5 5 3 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Historic Orders + Confirmed Orders as of April 10, 2020 Estimated "Flattened" Orderbook (COVID Impact) Bermello, Ajamil & Partners, Inc. WORLDWIDE FLEET CAPACITY MOVE FROM SUPPLY TO DEMAND INDUSTRY (NEXT 7 10 YEARS) CRUISE BRANDS SHEDDING OLDER LOW REVENUE/HIGH EXPENSE VESSELS THESE ARE SHIP WITH AN AVERAGE AGE OF 42.6 YEARS 2020 TARGETING UP TO 13 VESSELS WITH 19,633 - CAPACITY 2021 TARGET UP TO AN ADDITIONAL 39 WITH A CAPACITY OF 58,898 2022 -2027 - YEAR AVERAGE IS 5 PER YEAR (THIS IS BAKED INTO OUR NORMAL FORECASTING) 2028 ONWARDS 2.1% ANNUAL GROWTH SHIP WITHDRAWALS WILL AFFECT BRANDS DIFFERENTLY SOME LINES WILL NOT BE AFFECTED THE ONES WITH THE OLDER FLEETS WILL SEE REDUCTIONS REGIONAL MARKET CAPTURE MAY SHIFT BASED ON POLICIES GOVERNMENTS COULD MANDATE LOAD FACTORS / NEW SPACE PROGRAMS CONSUMER DEMAND COULD FAVOR CERTAIN OPERATIONS PORT OPENINGS, CRUISE VESSEL PREP CREW, ETC. Bermello, Ajamil & Partners, Inc. CARNIVAL FLEET REDUCTION CRUISE SHIP BRAND NEW OPERATOR TONNAGE CAPACITY BUILT AGE PRICE/TERMS DELIVERY NEOROMANTICA COSTA CELESTYAL 53,048 1,578 1993 27 N/A TBD MAASDAM HOLLAND AMERICA UNKNOWN 55,575 1,258 1993 27 N/A AUGUST 2020 VEENDAM HOLLAND AMERICA UNKNOWN 57.092 1,350 1996 24 N/A AUGUST 2020 AMSTERDAM HOLLAND AMERICA FRED. OLSEN 62,725 1,380 2000 20 N/A FALL 2020 ROTTERDAM HOLLAND AMERICA FRED. OLSEN 61,849 1,404 1997 23 N/A FALL 2020 OCEANA P&O UK UNKNOWN 77,499 2,016 2000 20 N/A JULY 2020 VICTORIA COSTA UNKNOWN 75,166 1,928 1996 24 N/A JUNE 2020 PACIFIC DAWN P&O AUSTRALIA CMV 70,285 2,020 1991 29 N/A MARCH 2021 PACIFIC ARIA P&O AUSTRALIA CMV 55,819 1,258 1994 26 N/A MAY 2021 ATLANTICA COSTA CSSC 85,619 2,114 2000 20 N/A Q4 2019 MEDITERRANEA COSTA CSSC 85,619 2,114 2003 17 N/A Q4 2020 PACIFIC JEWEL P&O AUSTRALIA ZEN CRUISES 70,250 1,590 1990 30 N/A MARCH 2019 PRINSENDAM HOLLAND AMERICA PHOENIX REISEN 38,484 835 1988 32 N/A SUMMER 2019 ORIANA P&O UK CTS 69,153 1,822 1995 25 N/A SUMMER 2019 FANTASY CARNIVAL NOT DISCLOSED 70,367 2,040 1990 30 N/A JULY 2020 INSPIRATION CARNIVAL NOT DISCLOSED 70,367 2,040 1996 24 N/A JULY 2020 FASCINATION CARNIVAL LAID-UP 70,367 2,040 1994 26 N/A JULY 2020 IMAGINATION CARNIVAL LAID-UP 70,367 2,040 1995 25 N/A JULY 2020 Bermello, Ajamil & Partners, Inc. WORLDWIDE START-UP TRENDS LIMITED TO SPECIFIC GEOGRAPHIC AREAS NOT REQUIRING AIR (OR VERY LIMITED) RELYING PRIMARILY ON DRIVE / RAIL MARKETS NA FL / TX HOMEPORTS TO CARIBBEAN REGION SHORT DURATION 1 7 DAYS MAXIMUM (MAJORITY 2 4 NIGHTS) ITINERARIES USE PRIVATE ISLANDS AND KEY SECURED PORT(S) (PORT AVAILABILITY DEPENDENT) CRUISE TO NOWHERE MAY BE UP TO 3 DAYS BAHAMAS SHUT DOWN IS A MAJOR IMPEDIMENT EUROPE BCN / MARSEILLES TO MED REGION (FRENCH / SPANISH) DOVER TO UK / CHANNEL PORTS (UK) HAMBURG / LUBECK TO BALTIC (GERMAN) NORWEGIAN FJORDS (SMALL SHIP SAILING) SHORT DURATION 1 5 DAYS / CRUISE TO NOWHERE (PORT AVAILABILITY DEPENDENT) ASIA HK, SHANGHAI, GUANGZHOU (CHINA / HK MARKET) SIN TO SE ASIA (ASIA / SIN MARKET) SHORT DURATION 1 7 DAYS / CRUISE TO NOWHERE (PORT AVAILABILITY DEPENDENT) SEATTLE / ALASKA INDUSTRY COULD SURPRISE EVERYONE WITH A HUGE 2021 SEASON Bermello, Ajamil & Partners, Inc. WORLDWIDE FORECASTS SAME RECOVERY PERIOD OF AIR TRAVEL AFTER 9-11 60,000,000 3 4 YRS 5 YEARS TO NORMAL BOUNCE STABILIZATION 50,000,000 40,000,000 30,000,000 20,000,000 DRAFT 10,000,000 - Historic Low (Pre-COVID) Low (COVID) Mid (Pre-COVID) Mid (COVID) High (Pre-COVID) High (COVID) Source: Bermello, Ajamil & Partners July 2020 Bermello, Ajamil & Partners, Inc. BRING BACK PROTECT PORT CUSTOMERS COMMUNITIES ENSURE INVESTORS PROTECTING THE DESTINATION Bermello, Ajamil & Partners, Inc. CRUISE HOMEPORT TERMINAL PROCESS PEOPLE BAGGAGE SERVICES PERSONS ENTERING THE TERMINAL / ALL CHECKED BAGGAGE WILL BE ALL GOODS WILL BE EXTERNALLY PIER MUST UNDERGO STRICT HEALTH EXTERNALLY SANITIZED IN TERMINAL SANITIZED WITH NEW TECH SYSTEMS SCREENINGS UPON EACH ENTRY / OR BAGGAGE BUILDING IN WAREHOUSE, TRUCK, CONTAINER RE-ENTRY WITH NO EXCEPTIONS PRIOR TO BEING LOADED ONTO THE CARRY ON BAGGAGE WILL BE VESSEL. PRE-BOARDING SCREENINGS EXPOSED TO U/V LIGHT FOR ~10- 20 SEC. AND CAN BE INCLUDES FOOD, BEVERAGE, SCALABLE DEPENDENT UPON INCORPORATED INTO THE SECURITY HOTEL, DECK AND ENGINE, AND HEALTH ALERT LEVEL SYSTEM AT CHECK-IN SERVICE SUPPLIES Bermello, Ajamil & Partners, Inc. THE ROLE OF THE PORT ADJUST FACILITIESTO MEET THE NEEDS OF THE NEW PROTOCOLS PROVIDE MEASURES TO CONTROL INFECTIONS FROM ENTERING THE VESSEL INSTITUTE CONTROLS TO PROTECT THE COMMUNITIESFROM DISEMBARKING PASSENGERS PROTOCOLS QUARANTINE AREAS CONTINGENCYPLANS FOR EMERGENCIES Bermello, Ajamil & Partners, Inc. PROTOCOLS BEING PROPOSED BY CRUISE LINES SOCIAL DISTANCING (CAPACITY LIMITATION IN VENUES, EXCURSIONS, ETC.) HIGHER FREQUENCY SANITIZATION AND DISINFECTION TEMPERATURE SCREENING PASSENGERS SUSPENSION OF SELF-SERVICE ITEMS (BUFFET, BEVERAG STATIONS, ETC.) CREW TRAINING WORKSHOPS (HEALTH AND SAFETY PREVENTIVE MEASURES) TEMPERATURE SCREENING CREW GUEST-FACING CREW TO WEAR FACE MASKS HEALTH AND SAFETY QUESTIONNAIRE (EMBARK) RELAXED CANCELLATION POLICIES EXTERNAL FRESH AIR VENTILATION SYSTEMS NEW DISINFECTANT TECHNOLOGY (FOGGING / SPRAY / UV) ONLINE CHECK-IN, DESIGNATED / STAGGERED ARRIVAL TIME FOR EMBARK SOCIAL DISTANCING AT PORT (MORE WAITING AREAS, UPDATED FLOWS, ETC.) DISINFECTION OF LUGGAGE GUESTS TO WEAR MASKS INFRARED / THERMAL IMAGING TEMPERATURE SCREENING SYSTEM SOCIAL DISTANCING - CAPACITY REDUCTION OVERALL ISOLATION ACCOMODATIONS / ABILITY TO ISOLATE MEDICAL-GRADE AIR-FILTERS / DISINFECT (I.E. H13 HEPA) / SAFE AIR VENTILATION INDIVIDUAL AIR SYSTEMS FOR EACH CABIN / CLEANING OF FILTERS ENSURE HEALTH AND SANITATION PROTOCOLS EXTEND TO SHORESIDE EXPERIENCE ADDITIONAL ONBOARD MEDICAL STAFF GUEST & CREW TRAVEL DOCUMENT CHECK INCREASE DIGITAL TOUCHPOINTS (EMBARK, MENUS, GUEST COMMUNICATIONS, ETC.) SOCIAL DISTANCE MODIFICATION (FLOOR MARKINGS, BARRIERS, SIGNAGE ETC.) DOCTOR NOTE / COVID-19 TEST PRIOR TO BOARDING FOR GUESTS BAR SERVICE CLOSED SHARED ITEMS (I.E. MAGAZINES, GAMES, MENUS, SALT, PEPPER, ETC) SUSPENDED SANITARY KITS PROVIDED TO GUESTS (MASK, DISINFECTENT, ETC.) 0% 20% 40% 60% 80% 100% Bermello, Ajamil & Partners, Inc. DESTINATIONS THAT HAVE ANNOUNCED USVI St. Maarten Puerto Rico Barbados Norway Bahamas Bermuda Iceland Jamaica Cruise Specific Yes - Nordic Ready for Cruise Travel Yes Yes Fall TBA Yes Yes No Countries Yes - 50% Max Cap.; Capacity Limitation (Vessels) max 250 pax Additional Medical Staff Onboard Required Yes Guest Health Certificates / Questionnaires Required Yes Yes Thermal Temperature Scans Yes Yes Face Mask Required Yes Yes Yes Yes Yes Yes Social Distancing Yes Yes Yes Yes Yes Yes Yes Additional Hand Washing / Sanitizing Yes Yes Yes Yes Yes Capacity Limitation (Transport, etc.) Yes Yes Higher Frequency Sanitization and Disinfection Yes Yes Yes Contactless Touchpoints Yes Yes Community Education / Training Yes Yes Yes Terminal Cleaning Before / During / After Ship Yes Additional Cleaning Available for Additional Charge (i.e. Luggage) Yes Protocol Sharing prior to Arrival (Guests, Cruise Lines, etc.) Yes Crisis Emergency Service Department Yes Medical Unit on Site Yes Temperature Screening for Employees Yes Contactless embark / debark process Yes Continue Protocol Refinement Yes Yes Yes Yes Yes Yes General Travel Arrivals Temperature Screening for Arrivals Yes Yes Yes Yes (or PRC Test for Arrivals Yes Quarantine) Yes (or PRC Self-Quarantine Yes test) PRC Test 72-Hours Prior to Arrival Yes Review Travel History Yes Bermello, Ajamil & Partners, Inc. EU/EEA GUIDANCE 06.30.20 Bermello, Ajamil & Partners, Inc. COORDINATION Bermello, Ajamil & Partners, Inc. MEASURES AT CRUISE TERMINALS Bermello, Ajamil & Partners, Inc. SPECIFIC REGULATIONS Bermello, Ajamil & Partners, Inc. OTHER PROTOCOLS ARE BEING PUBLISHED Bermello, Ajamil & Partners, Inc. SCALABLE HEALTH SCREENING (DEPENDING ON THREAT) No pandemics Normal health protocol - Health questionnaires, Embark health checks, Sanitation, Onboard healthcare process Ex. typical illness, common cold 0 Regional / localized virus identified Checking passengers, no testing Upgraded protocols temperature, visual checks, documentation. Vessel repositioning and upgraded sanitization process... Ex. Flu-type Epidemic (Shoreside or On board) 1 Pandemic Checking passengers with non mandatory testing Upgraded protocol pre-Testing, option & Quarantine, PPE, Expedite passenger and crew repatriation, Quick response action plan Ex. Pandemic 2 Pandemic Highest health protocol 100% Testing & Quarantine, PPE, Expedite passenger and crew repatriation, Vessel lay-up, Minimize exposure (Quick response action plan) Ex. Pandemic (worldwide starting with regional area) 3 Bermello, Ajamil & Partners, Inc. TERMINAL OPERATING AND HEALTH CHECK PHASES SELECTE D SAILINGS INITIA L REOPENING OF MAJO RS PARTIAL OP ERATIONS R ESTRICTED O PERATIONS NOR MAL OPERA TIONS LEVEL 3 L EVEL 2 LE VEL 1 LEV EL 0 TE STING I MPROVE S THE RAPEUTI CS IMP R OVE VAC CINES DEPLOYE D COVID ERADI CATED JULY SEPT NOV JAN MAR MAY JULY SEPT NOV JAN Bermello, Ajamil & Partners, Inc. LEVEL 0 - EMBARKATION TODAY LUGGAGE SECURITY / SORTING CHECKSECURITY WAITING IN Bermello, Ajamil & Partners, Inc. LEVEL 2 - EMBARKATION PRE-TEST OPTION; TEST NOT MANDATED LUGGAGE SECURITY / DISINFECTION / SORTING PRE- TESTED PT PT PT PRIMARY CHECK- CLEARED SECURITY CLEARED CLEARED WAITING IN CLEARED PRIMARY PT HEALTH NOT TESTED TESTING HEALTHY TERMINAL HEPA FILTERS QUARANTINE / LIMITED RECIRCULATION RESOLUTION ISOLATION SPECIAL SURFACES AREA AREA TERMINAL-WIDE TEMPERATURE SCREENING LIMITED PUBLIC AREAS Bermello, Ajamil & Partners, Inc. LEVEL 3 - EMBARKATION PRE-TEST OPTION WITH MANDATORY TESTING LUGGAGE SECURITY / SANITATION / SORTING PRE- TESTED PT PT PT PRIMARY CHECK- CL EAR ED SECURITY CLEARED CLEARED WAITING CLEARED PRIMARY IN PT HEALTH NOT TESTED TESTING HEALTHY TERMINAL HEPA FILTERS QUARANTINE / LIMITED RECIRCULATION RESOLUTION ISOLATION SPECIAL SURFACES AREA AREA TERMINAL-WIDE TEMPERATURE SCREENING LIMITED PUBLIC AREAS Bermello, Ajamil & Partners, Inc. LEVEL 1 - EMBARKATION NO TESTING PROTOCOL LUGGAGE SECURITY / SANITATION / SORTING PRIMARY HEALTH CHECKSECURITY CLEARED CLEARED WAITING IN CLEARED PT NOT TESTED HEALTHY TERMINAL HEPA FILTERS QUARANTINE / LIMITED RECIRCULATION RESOLUTION ISOLATION SPECIAL SURFACES AREA AREA TERMINAL-WIDE TEMPERATURE SCREENING LIMITED PUBLIC AREAS Bermello, Ajamil & Partners, Inc. DISEMBARKATION CBP PRIMARY (USA) PRIMARY HEALTH CBP SECONDARY (USA) TESTING HEALTHY TERMINAL HEPA FILTERS QUARANTINE / LIMITED RECIRCULATION ISOLATION SPECIAL SURFACES AREA TERMINAL-WIDE TEMPERATURE SCREENING LIMITED PUBLIC AREAS Bermello, Ajamil & Partners, Inc. DISEMBARK PRE COVID 19 POST COVID 19 Bermello, Ajamil & Partners, Inc. EMBARKATION POST COVID 19 PRE COVID 19 SCHEDULE ADJUSTMENTS Bermello, Ajamil & Partners, Inc. CUMULATIVE TIME IMPACT ON TURN-AROUND OPERATIONS FULL TURNAROUND AT NORMAL PRE-COVID SHIP CAPACITY PRACTICING SOCIAL SEPARATION IN TERMINAL PRE-C OVIDWITH OUT SOCI AL SEPARA TION S HIP DISEM BARK T RANSITION EMBARK CLE ARED POST-C OVID WI TH SOCIAL SEPARATIO N S HIP DIS EMBARK TRANSITIO N / DISINFEC T EMB ARK CLE ARED 0600 0800 1000 NOON 1400 1600 1800 2000 2200 MID Bermello, Ajamil & Partners, Inc. TERMINAL INFRASTRUCTURE INFRASTRUCTURE AREA WIDE TEMPERATURE SCANNING STARTING OUTSIDE THE TERMINAL LINKED TO CRUISE LINES SYSTEMS FACIAL RECOGNITION TRACKS GUEST THROUGHOUT THE JOURNEY TRANSMIT DATA FROM SHIP TO SHORE DISINFECTION BOARDING TUNNELS Bermello, Ajamil & Partners, Inc. THE TERMINAL INFRASTRUCTURE TERMINALS UPDATED TO INCLUDE AN HVAC SYSTEM THAT PROVIDES SANITIZED AIR (99.9% FREE OF PATHOGENS AND BACTERIA, INCLUDING COVID-19 VIRUS) KILLS ALL VIRUS AND BACTERIA ON ALL SURFACES, CLOTHING, AND CARRY-ON ITEMS TERMINAL INTERIORS INCLUDING ALL TABLE AND COUNTER TOPS, SEATING, HANDRAILS AND OTHER SURFACES, WINDOWS, ETC. WILL BE TREATED AND CLEANED TO MAINTAIN 99.9 % PATHOGEN AND BACTERIA FREE CONDITION U/V LIGHT PLATFORM FOR 8 SECONDS SANITIZES ALL SURFACES AND SOLES OF THEIR SHOES Bermello, Ajamil & Partners, Inc. BAGGAGE AND PROVISIONING CHECKED BAGGAGE NEEDS TO BE EXTERNALLY SANITIZED WITH NEW SYSTEMS CARRY-ON BAGS EXPOSED TO U/V LIGHT WITHIN CLOSE PROXIMITY FOR 10- 20 SECONDS THIS COULD BE INCORPORATED INTO THE SECURITY SCREENING PROCESS TRANSPORT OF STORES FROM WAREHOUSES TO THE SHIP ELIMINATION OF PATHOGENS / VOC AT THE WAREHOUSE, IN THE CONTAINER OR BOTH Bermello, Ajamil & Partners, Inc. CONCLUSIONS PORTS AND TERMINALS SHOULD BE CAPABLE OF EXECUTING DIFFERENT COMBINATION AND LEVELS OF HEALTH PROTOCOLS ADDING NEW PROTOCOLS WILL CHANGE THE RESULTS AND ADD TIME AND COMPLEXITY SOCIAL DISTANCING WILL MEAN TIME THE SHIP WILL NEED TO EMBARK AND DISEMBARK CAN INCREASE TO 10 TO 11 HOURS WHEN OPERATING AT FULL CAPACITY, PLUS THE ADDITIONAL TIME TO SANITIZE SHIP WHILE SHIPS ARE OPERATING LESS THAN FULL OCCUPANCY THIS NUMBER WILL BE MITIGATED PROCESSING CAPACITIES UNDER LONGER TIMES WILL MEAN REDUCED NUMBER OF PROCESSING STATIONS (SECURITY, CHECK-IN, CBP, ETC.) THIS MIGHT FREE UP SPACE TO REPURPOSE Bermello, Ajamil & Partners, Inc. WHAT IS NEXT WHAT IS NEXT CRUISE LINES OBTAIN RELEASE OF "NO SAIL ORDER" BEGIN OPERATIONS IN A PHASED DEVELOPMENT BY 4Q-2020 OR 1Q-2021 THEY WILL BE READY FOR A PRETTY FULL OPERATION FOR THE 2021 ALASKA SEASON, BUT ONLY IF: PROTOCOLS ARE KNOWN CAPACITY LIMITS ARE KNOWN BERTH AVAILABILITY IS KNOWN COMMUNITIES ARE READY TO RECEIVE THEM FACILITIES ARE ADAPTED THEDECISIONS ON CRUISE SALES ARE BEING MADE NOW PORTS NEED TO DETERMINE THEIR ROLE AND WHAT THEY WILL ALLOW Bermello, Ajamil & Partners, Inc. WHO IS GET THE PORTS READY? WILL ITINERARIES BYPASS COMMUNITIES THAT WILL NOT RECEIVE SHIPS? FORCING LINES TO VISIT AREAS LIKE GLACIER BAY, OR PRIVATE DESTINATIONS LIKE ICY STRAITS? Bermello, Ajamil & Partners, Inc. WHAT IS NEXT? PORTS NEED TO ASSURE THEIR COMMUNITIES OF THE CRUISE BUSINESS DEVELOP A SOUND AND SAFE PLAN DEVELOP NEW OPERATING PROCEDURES LONG-TERM THE FUNDAMENTALS OF THE BUSINESS ARE SOUND AND TRAFFIC WILL RETURN CRUISE LINES AND PORTS ARE FINANCIALLY WEAK AND WILL HAVE SERIOUS CAPEX LIMITS SERIOUS INTEREST BY PRIVATE EQUITY AND THIRD PARTIES TO MAKE INVESTMENTS IN SEATTLE THE 2021 ALASKA SEASON MIGHT ACTUALLY BE VERY SUCCESSFUL MAY RESULT IN HIGHER BERTH UTILIZATION LONG-TERM WE WOULD NOT BE SURPRISED TO SEE A CONTINUED STRONG INTEREST SEATTLE HAS A GREAT OPPORTUNITY TO TAKE A LEADERSHIP POSITION IN HELPING CRAFT THE REGIONAL SOLUTION IMPEDIMENTS SELF IMPOSED GUIDELINES CANADIAN RESTRICTIONS ALASKA RESTRICTIONS Bermello, Ajamil & Partners, Inc. STATE OF THE CRUISE INDUSTRY V2.0 07.22.20 JLL research points to further COVID-19-industrial real estate gains - Logistics Managem... Page 1 of 2 JLL research points to further COVID-19- industrial real estate gains Driven largely by the combination of the ongoing COVID-19 pandemic and sheltering-in-place policies, which have, in turn, spurred on increased e-commerce activity and the subsequent need for additional industrial real estate space, JLL said it is pegging e-commerce sales to hit $1.5 trillion by 2025, well ahead of 2019's $602 billion, as per Digital Commerce 360 data. That estimate would boost U.S. industrial real estate demand, from its current 13,579,524,662 square-feet, to another 1 billion square-feet, according to JLL data. By Jeff Berman, Group News Editor July 10, 2020 As the number of people shopping online continues to rise in the United States, so, too, do the growth levels for industrial real estate, specifically warehouses and distribution centers, according to data recently issued by Chicago-based real estate and investment management firm JLL (https://www.us.jll.com/). Driven largely by the combination of the ongoing COVID-19 (/topic/tag/COVID-19) pandemic and sheltering-in-place policies, which have, in turn, spurred on increased e-commerce activity and the subsequent need for additional industrial real estate space, JLL said it is pegging ecommerce sales to hit $1.5 trillion by 2025, well ahead of 2019's $602 billion, as per Digital Commerce 360 data. That estimate would boost U.S. industrial real estate demand, from its current 13,579,524,662 square-feet, to another 1 billion square-feet, according to JLL data. The firm noted that the impact of the COVID-19 pandemic on e-commerce and industrial real estate is also highlighted by the fact that before COVID-19 took hold, the firm tied up to 35% of its industrial leasing to e-commerce. But that has taken a sharp upward turn, with JLL saying it expects e-commerce to increase by 20% in 2020. Craig Meyer, President, Jones Lang LaSalle Americas Industrial, observed in the research that going back to 2011, industrial rent growth has been positive and vacancy rates have been at historic lows providing attractive, stable, long-term returns to investors. "These solid fundamentals and the fact that e-commerce still has a long runway for growth makes industrial real estate the darling of the commercial real estate industry," he added. While U.S. industrial real estate is pegged to head up by another 1 billion square-feet by 2025, Rich Thompson, JLL's global Supply Chain & Logistics Consulting Leader, noted in an interview that this estimate could actually be viewed as somewhat conservative. "In recent months, we have seen a lot of different numbers, for things like e-commerce sales and basis points for leasing, from different sources, and, in doing our own due diligence, it continues to confirm that e-commerce will only continue to grow, which confirms our estimates," he said. Thompson added that when looking back at where e-commerce was as a percentage of total retail sales, at the end of 2019, it was relatively low, and has subsequently gained significant traction, as proven out by the pandemic. https://www.logisticsmgmt.com/article/jll_research_points_to_further_covid_19_industrial... 7/20/2020 JLL research points to further COVID-19-industrial real estate gains - Logistics Managem... Page 2 of 2 "It will only accelerate, and the adoption rates by older people that typically had not turned to ecommerce before, for things like groceries, have gone up," he said. "There is a lot or runway left with e-commerce, specifically for related facilities like e-commerce fulfillment centers that are dealing with individual packages more so than pallets in and out of facilities. These places are bigger and have more people working there and more SKUs, too." With that as a backdrop, Thompson said he views the pipeline for continued e-commerce related real estate demand as robust. Using online grocery, which has accounted for around 3.5% of ecommerce activity as an example prior to the pandemic, he said that is something that will continue to gain traction, when the COVID-19 pandemic is eventually in the past. Another thing to monitor, according to Thompson, is inventory management and safety stock efforts, for critical parts and medical equipment. "If inventories were to increase by 5%, some people think that could drive another 300 million square-feet of industrial real estate in and of itself, but I do think there will be some incremental inventory safety stock of critical items and critical parts as a risk management play," he said. "Our current numbers do not take that into consideration." About the Author Jeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the https://www.logisticsmgmt.com/article/jll_research_points_to_further_covid_19_industrial... 7/20/2020 12 Industry Channels Expected to Thrive Post-COVID-19 - Knowledge Leader - Colliers ... Page 1 of 6 12 Industry Channels Expected to Thrive Post- COVID-19 BY KNOWLEDGE LEADER EDITOR | 28 APRIL 2020 Uncertainty drives change. With every global pandemic throughout history, out of safety and necessity, mankind has demonstrated remarkable resilience to evolve and adapt to a new normal. During these times there is documented evidence of markedly accelerated adoption of new behaviors. Now, due to the COVID-19 pandemic, the timeframes for embracing new emerging technologies are being radically accelerated. In some instances companies and sectors will see a decade of market penetration compressed into the next 12 months. In our view, the confluence of these needs and circumstances within very specific niches that intersect with each other, is creating opportunities for rapid exponential growth in numerous channels. We have summarized twelve that we believe will be the most pervasive: 1. E-Commerce retailers Online is booming. Across the country and the globe, humans have been forced to use it for everything. The adoption rate in the United States has grown tremendously and will probably never retreat to pre-COVID levels. It is not just demographics like older Americans now moving to e-commerce as a necessity, it's vertical, as in most Americans are all of the sudden buying verticals like groceries and consumer products online. This creates exponential growth and while it will pull back after quarantines, it will revert to a mean as consumers continue shopping online out of convenience in a post-COVID-19 world. 2. Industrial real estate Typically when we think about an e-commerce distribution facility, we calculate that they require about three times that of a typical business-to-business facility to accommodate more complex pickpack systems and provide access to a greater variety of product. With an interest in bringing some industries back to the United States for better control in times of disruption, as well as a new trend of increasing safety stock, demand for industrial space will likely grow. Following on the growth of e-commerce, new retailers will develop strictly online marketplaces and have management either working from the distribution facility and/or from home. https://knowledge-leader.colliers.com/editor/12-industry-channels-expected-to-thrive-post-... 7/21/2020 12 Industry Channels Expected to Thrive Post-COVID-19 - Knowledge Leader - Colliers ... Page 2 of 6 3. Augmented reality The ability to see and touch goods prior to purchasing has not taken a hold yet in America, but with a trend of staying closer to home, augmented reality of the shopping environment is likely to displace some of the desire to drive to a store. With the technologies improving and the costs declining, the transition will be made easier. 4. Robotics The benefits of not relying on humans has never been more evident than during this pandemic. Prior to COVID-19, the rationale behind leveraging artificial intelligence (AI) was primarily based upon rising wage concerns and lack of available workers. Now high unemployment means an abundance of available workers, but working environments incorporating social distancing norms will require a transformation of the warehouse operations. Watch for these automated technologies to be adopted rapidly as employers look for low-cost, flexible automation solutions to replace humans wherever functionally possible. 5. 5G and the growth of bandwidth requirements With more people working from home, the speed of our connections will be paramount to many of the growth sectors listed here. It can't happen without faster connections and more homeowners are looking for opportunities to increase or accelerate their bandwidth as both parents and children are working and schooling from home. Here they come. 6. Virtual meetings Up until the COVID-19 pandemic, the only video conferencing or chat tool that had become somewhat ubiquitous was FaceTime. Now Zoom, Microsoft Teams and Skype are all being used widely across a variety of business sectors. Perhaps Zoom is to Virtual Human Connection analogous to how AOL dial up was to your Internet connection. 7. Online groceries and last-mile distribution centers What if grocery shopping meant choosing food online that never goes into a grocery store facility, but instead triggers a pick-up service window at an small, high cube tri-temp building with AI robots fulfilling your complete order to be ready at a pre-determined time slot? What if these could be built right now in the parking lots of existing grocery stores? Will retail stores double as last-mile distribution locations? 8. Freezer and cooler supply chain In times of crisis, food delivery becomes more critical to as a basic human need. One of the first industries to experience a real boom in work from the onset of this pandemic was food, specifically frozen food. People stocking up on necessities for an uncertain time have added additional stresses on our food supply chain, and this sector is now forced to re-imagine supply chains. Most likely, it will mean a greater need for a safety stock of food supplies in cities across the country. If the facilities are handling bulk shipments, they will probably also employ a greater level of automation, perhaps even running semi-autonomously. Already there are food facilities in this country utilizing this "dark" model. In the coming years, expect to see more. https://knowledge-leader.colliers.com/editor/12-industry-channels-expected-to-thrive-post-... 7/21/2020 12 Industry Channels Expected to Thrive Post-COVID-19 - Knowledge Leader - Colliers ... Page 3 of 6 9. Dark kitchens These are virtual restaurants without tables. With so many restaurants solely reliant upon home delivery of food, and the cost of maintaining a physical retail location and staff to operate a restaurant growing, the "dark" kitchen model almost the e-commerce of food will continue to grow. It can becompared with the next iteration of the gourmet food truck, where rather than being fixed in one location, the restaurant is more flexible in its ability to delivery food to customers. Now, centralized kitchens could serve as a hub for many restaurants and deliver a myriad of different choices of food to a customer's home via Uber eats, DoorDash or a myriad of other choices. Delivery speed of food will continue to be positively impacted post-COVID-19. 10. Reverse globalization Vast socioeconomic trends had started to reverse globalization as companies sought supply chain resiliency by moving manufacturing closer to the consumer and creating redundancy in manufacturing and distribution operations. That trend will race as leaders ensure that their organizations will never be caught off guard like this again. 11. Supply chain resilience As discussed earlier, there will be a renewed interest in reshoring product to the United States, or moreover North America. Supply chains which have been outsourced to Asia in the fields of medical, pharmaceuticals and critical componentry may see government policy changes which promote these near-shoring opportunities. 12. E-Learning With most of American children forced to continue their education from home, e-learning has had a tremendous boost. The same is true with colleges and universities. What benefit do large college campuses have for a learning environment which can be replicated, or perhaps even improved upon, by taking the classroom out of the equation. With college tuition outpacing inflation significantly over the last decade, those institutions will be marginalized quickly by e-learning platforms and the younger generation of teachers will excel in this exciting field. https://knowledge-leader.colliers.com/editor/12-industry-channels-expected-to-thrive-post-... 7/21/2020 12 Industry Channels Expected to Thrive Post-COVID-19 - Knowledge Leader - Colliers ... Page 4 of 6 While we don't portend to know the future, and our lens is limited by our own experiences and a reflection of the past, it is in times of great disruption where great opportunity abounds. It is not just across the spectrum of the industries shared above, but among others that we cannot even imagine. Our commitment at Colliers is to continue to look with a sense of curiosity towards change, strive to gain an understanding and share our interpretations with the people and organizations that will strive to embrace and build the new future. About the Authors: Brian Netzky, SIOR, is an executive vice president at Colliers based in Chicago and specializing in exclusively representing industrial and office occupiers. He has more than 30 years of tenant representation experience working with manufacturers, distributors and service companies across North America. Brian is an avid reader and writer, curiously focused on the intersection of technology, finance and purpose. Gregory Healy, senior vice president, leads the Supply Chain Solutions team in the U.S. for Occupier Services. With over 20 years of global manufacturing and supply chain experience as both a senior executive in the corporate world, as well as owning a supply chain consulting practice and a third-party logistics business, Gregory has real world experience that brings a unique perspective to the Colliers team. https://knowledge-leader.colliers.com/editor/12-industry-channels-expected-to-thrive-post-... 7/21/2020 A Roadmap for Industrial Real Estate to Survive Post-COVID-19 | GlobeSt A Roadmap for Industrial Real Estate to Survive Post-COVID-19 Disruptions can create opportunities, if you're agile and strategic. By ALM Staff | June 19, 2020 at 07:09 AM COVID-19 has thrown a monkey wrench at our supply chain operations, creating disruptions that will have lasting impact for the industrial real estate segment. The critical question now is how the industry can navigate this uncertain landscape. WCL Consulting provides a roadmap, outlining the trends that affect the supply chain, trucking and warehousing. The upshot is that there are opportunities in these volatile times, provided that managers are agile and tactical. Here are some key points: Supply Chain Trends: Supply chain risk mitigation. This will grow in importance as we continue to witness the serious disruption of goods movement around the world. The ongoing tension with China and the U.S. over tariffs and the disruptions of COVID-19 amplify this point. 9 Alternative t o China sourcing. Despite China's mature supply chain ecosystem, a growing percentage of companies is considering making a change. Vietnam and Cambodia will likely be the beneficiaries, though importers will face rising business costs, development bottlenecks and less competitive workforces. Supply chain sustainability. "Going green" is not going away. The benefit goes beyond the environment: It can lower costs and increase customer loyalty and organizational goodwill. Accelerated digitalization. Shippers with digital platforms outperformed those using manual methods in responding to COVID-19 disruptions. Trucking Trends: Autonomous heavy-duty trucks. No longer a fantasy, these vehicles are showing progress in efficiencies and cost reductions. Warehouse facilities will require modified yard layouts and process changes to accommodate autonomous vehicle interface operations. Speed and accuracy in delivery. On average, 69% of customers will not shop with a company again if their delivery is late, so meeting customer expectations is critical. Warehouse automation growth. Expect more warehouse robotics, automated guided vehicles (AGV), autonomous mobile robots ((AMR), cobotics, and automated picking processes. Warehousing Trends: E-commerce's continued growth. This will drive demand for efficient warehousing operations. Moreover, e-commerce and direct-to-consumer growth will transform the fulfillment operations of retailers, manufacturers, plus their wholesalers and 3PLs. Speed and accuracy in delivery. On average, 69% of customers will not shop with a company again if their delivery is late, so meeting customer expectations is critical. Warehouse automation growth. Expect more warehouse robotics, automated guided vehicles (AGV), autonomous mobile robots ((AMR), cobotics, and automated picking processes. The bottom line, sums up WCL Consulting president Jon DeCesare, is that "today's 'normal' requires all organizations to modify the old ways of doing business, moving forward with innovative solutions." https://www.globest.com/2020/06/19/a-roadmap-for-industrial-real-estate-to-survive-post-... 7/21/2020 FISHERMEN'S TERMINAL MARKET STUDY PROVIDED TO THE PORT OF SEATTLE MADISON BAY COMMERCIAL Erwin Park 206.412.6036 epark@madisonbaycre.com MARCH 6, 2020 INTRODUCTION Founded in 1911, the Port of Seattle is a public agency in charge of the region's airport and maritime services operations. The Port of Seattle manages multiple facilities including SeaTac Airport, cruise terminals, the Fishermen's Terminal, recreational boating marinas, and cargo facilities. Its mission is to "promote economic opportunities and quality of life in the region by advancing trade, travel, commerce and job creation in an equitable, accountable and environmentally responsible manner" with a goal of adding 100,000 additional port-related jobs in the region by 2043. In Seattle, there are two separate manufacturing industrial centers: 1) the Duwamish Manufacturing Industrial Center, and 2) the Ballard Interbay Northend Manfacturing Industrial Center (BINMIC). The Fishermen's Terminal, managed by the Port, sits within the BINMIC and is home to the North Pacific Fishing Fleet. Traditionally and to present day, maritime commerce is a vital component of the local and regional economy. This includes numerous secondary industries that support maritime operations, including vessel maintenance, parts dealers, fueling operators, bookkeeping, insurance providers, and fish brokers. Over the last 10 years there has been minimal industrial commercial real estate development in the BINMIC region. This lack of development appears to be due to higher land and development costs and limited truck access. In addition, there has been very little vacancy. As such, many prospective tenants have renewed leases in place or looked to other markets to accommodate their needs. In this study we gauge industrial and flex space demands of Fishermen's Terminal, Interbay area, and Greater Puget Sound region to help inform development of industrial buildings that will be located at Fishermen's Terminal. MBC will provide: 1. Primary research on demand for industrial property within Puget Sound including demand drivers, market rent rates, vacancy rates, size requirements and tenant profiles, unmet need and projected demand for the next several years. 2. Primary research on demand for industrial land/property within the Ballard/Interbay Manufacturing Industrial Center (BINMIC) including demand drivers, market rent rates, vacancy rates, size requirements and tenant profiles, unmet need and projected demand for the next several years. 3. How many leases were signed in 2019 in the BINMIC; who the tenants are and what kind of spaces they leased. 4. Leasing and development trends that include what kind of development is occurring within the BINMIC area. 5. Identify the demand based on net absorption and vacancy rates based on pipeline and closed deals for light industrial product type. Recommend based on market demand for accessory office space or flex office comingled in with industrial space. Page 4 of 18 Fishermen's Terminal Market Study 6. Identify and research competitive projects in the local market. Consider anticipated additions to the market supply, historical and projected volume of demand, trends in occupancy and revenue, and the likely market position of the upcoming projects. 7. Recommend key leasing parameters for maritime-industrial leasing that includes rental rates, expense recovery, tenant improvements terms, and rent abatement recommendations. 8. Recommend appropriate building size, uses for a new waterfront development in an industrial-zoned areas in Interbay, Ship Canal, and Salmon Bay. Page 5 of 18 Fishermen's Terminal Market Study METHODOLOGY REGIONAL MARKET OVERVIEW STUDY MBC compiled data from multiple sources to provide an overview of the regional market. The dataset includes King, Pierce, Thurston, Snohomish and Kitsap Counties. MBC utilized commercially available aggregated data (CoStar) as well as proprietary survey data from landlord and prospective tenants. To better understand long-term trends in the region, MBC analyzed rental, growth, and vacancy rates over a ten-year period. MBC surveyed 48 regional commercial landlords and prospective tenant representatives. MBC asked these individuals to provide the following data: their business's sector (e.g. construction, distribution, etc.), their square footage requirements, and the location they were interested in leasing. BALLARD/INTERBAY NORTHEND MANUFACTURING INDUSTRIAL CENTER (BINMIC) STUDY MBC surveyed landlord representatives of 12 buildings with vacancy about leasing inquiries since January 1, 2020. The survey asked the following questions: How many leasing inquiries did you receive in the last 8 to 12 weeks? What was their industry sector? What were the size requirements? Did they have dock-high or grade-level door requirements? Any specific power requirements? Any slab thickness requirements? Any other details that were unique in each call? MBC also interviewed fishing vessel owners currently operating out of Fisherman's Terminal. All rental rates are quoted as triple-net (NNN). Page 6 of 18 Fishermen's Terminal Market Study REGIONAL MARKET OVERVIEW STUDY The Puget Sound Region has a strong and growing industrial economy. Distribution and eCommerce are significant industrial drivers in the region, with global enterprises such as Amazon and FedEx occupying significant warehouse space. Regional demands in industrial real estate continue to increase. As of December 2019, the Puget Sound Industrial Market consists of 329,140,023 sf. In 2019, the regional market had a net absorption of 398,773 sf. At the end of 2019, the vacancy rate for the area was 4.7%. The first quarter of 2020 is indicating Figure 1: Vacancy Rate and Rent/SF/Mo from 2010 vacancy rates of 5.1%. A to Present vacancy rate of 5.0% or 10% $1.00 below is considered a strong 9% $0.90 industrial real estate market. 8% $0.80 7% $0.70 The 2019 average rental rate 6% $0.60 for the region was Vacancy Rate 5% $0.50 $0.91/sf/mo NNN. 4% $0.40 3% $0.30 Rent/SF/Mo in $ Rental rates have increased 2% $0.20 on average 6.71% each year 1% $0.10 0% $0.00 for the past five years (2015 to 2019). The previous five years (2010 to 2014) Vacancy Rate Rent/SF/Mo increased on average 4.93% each year. In 2019, rental rates have increased on average 5.4%, for an average of $0.91/sf/mo across the region (Fig. 1). Rental rates vary widely by county, however, from $0.71/sf/mo in Thurston County to $1.26/sf/mo in King County (Fig. 2). Regionally, rent continues to increase while vacancy rates generally appear to decrease. New construction has driven vacancy rates up slightly since 2018 (Fig. 3). Rent growth and vacancy rates vary by county as Figure 2: Average Monthly Rental Rates well. Pierce County has ($/sf/mo as of Feb 2020) the highest annual rent $1.40 $1.26 growth rate and vacancy $1.20 $1.02 rate in Feb 2020 while $1.00 $0.93 $0.76 Kitsap County has the $0.80 $0.71 lowest (Fig. 4). $0.60 $0.40 $0.20 $0.00 King Kitsap Pierce Snohomish Thurston Page 7 of 18 Fishermen's Terminal Market Study DEMAND DRIVERS Ecommerce/retail distribution and delivery are still major driving factors in the area's industrial growth, with Amazon leading in square footage leased last year. Of the top 40 industrial leasing deals in 2019, Amazon was responsible for 12.8% of them. Figure 3: Percent Change in Total Available SF Others in this sector include 8% Ashley HomeStore, Port Logistics Group, and Funco. 6% Many larger traditional 4% industrial uses have been moving further south into Kent 2% and Pierce County due to the lower cost of land, truck 0% accessibility, housing costs, and -2% rental rates. TENANT SIZE AND PROFILE BINMIC Regional Currently in the Puget Sound area there is approximately 8,000,000sf of active industrial leasing requirement currently in the market. Out of the 79 industrial leasing requirements that our records show, 25 of them are for sizes greater than 100,000sf, 17 are between 50,000sf and 99,999sf, 23 between 20,000 and 49,999sf, 14 below 20,000sf. Tenants in the distribution sector are looking for the most square footage in the regional market, with eCommerce tenants following close behind. There were a number of undisclosed or confidential tenants in the market that are categorized as "undisclosed" (Fig. 5). Figure 4: Annual Rent Growth and Vacancy Rates by County (as of Feb 2020) 6.0% 5.4% 5.4% 4.9% 5.1% 5.0% 4.5% 4.0% 3.1% 3.0% 2.6% 2.2% 2.3% 2.0% 0.8% 1.0% 0.0% King Kitsap Pierce Snohomish Thurston Annual Rent Growth Rate Vacancy Rate Page 8 of 18 Fishermen's Terminal Market Study Figure 5: Regional Industrial Demand by Square Footage Requirement 2.34% Construction 25.49% Distribution 39.20% eCommerce Sports & Entertainment Food & Beverage Laboratory Use Manufacturing Storage Transport 13.47% Undisclosed 1.91% 3.15% 0.43% 4.59% 6.90% 2.52% UNMET NEED AND PROJECTED DEMAND There is a dearth of space for both small businesses needing 5,000sf or less and larger businesses seeking 500,000sf or more. Upon interviewing ownership representatives for 7 different flex buildings in the Puget Sound Area, we discovered they fielded leasing inquiry requests 1.83 times per day on average. Requirements were varied coming from companies that do construction, Amazon sales, distribution, hemp manufacturing, chip processing, and food manufacturing. The following flex building ownership representatives were contacted: West Valley Business Park - 19226 66th Ave Kent, WA 98032 Seattle Exchange - 601 Strander Blvd Tukwila, WA 98188 SeaTac Business Center - 20804 International Blvd SeaTac, WA 98198 Cumberland Industrial - 22030 68th Ave S Kent, WA 98032 Overlake Business Center - 2525 152nd Ave NE Redmond, WA 98052 212 Business Park - 7818 S 212th St Kent, WA 98032 Renton Business Park - 901 Rainier Ave N Renton, WA 98057 Page 9 of 18 Fishermen's Terminal Market Study BALLARD/INTERBAY NORTHEND MANUFACTURING INDUSTRIAL CENTER (BINMIC) STUDY The BINMIC is located within the City of Seattle, with Queen Anne neighborhood to the east and Magnolia to the west (Fig. 6). To the north , it is situated on the south waterfront boundary of Ballard. It is an industrial area that has Terminal 91 (cargo and cruise terminal) and Pier 86 (grain terminal) to the south. In the northern end of the BINMIC lies the Fisherman's Terminal, home to ~300 commercial fishing vessels. The Washington Army National Guard's Armory is located in this region but recently announced its relocation to a more emergency-ready location along I-90. Figure 6: Map of BINMIC The BINMIC consists of an approximate inventory of 7,408,154sf with a vacancy rate of 0.94% at the end of 2019. A vacancy rate under 5.00% is considered low. 2019 ended with an average rental rate of $1.23/sf/mo NNN, a 6.96% rent increase from the previous year and a net positive absorption of 51,981sf. Rates have continued to increase as vacancy decreases over the years (Fig. 7). Page 10 of 18 Fishermen's Terminal Market Study Figure 7: BINMIC Vacancy and Rental Rates 2000-Present 4% $1.60 $1.40 3% $1.20 Vacancy Rate $1.00 2% $0.80 $0.60 1% $0.40 Rental Rate ($/sf/mo) $0.20 0% $0.00 Vacancy Rate Monthly Rental Rate DEMAND DRIVERS Major demand in the BINMIC has traditionally been maritime-related, including fishing gear retailers, vessel maintenance and parts distributors, fish distributors, accountants, processors, and moorage. Second to maritime-related businesses, brewery/distillery-related businesses occupy a significant footprint within the BINMIC. There is a variety of other sectors occupying space in the BINMIC as well, including distribution, printing, childcare, manufacturing, cannabis, brewing, distilling, and sports facilities. SIZE REQUIREMENTS The majority of the tenants in this area have had a long-term presence. Those looking for space have had to look outside of the BINMIC due to the low vacancy. Based on our interviews with landlord representatives for 12 properties, we concluded there is an approximately 288,315sf to 480,525sf of demand from all different types of industries. Out of 159 calls that landlord representatives have received year-to-date (2/18/20), 129 were for square footage sizes of less than 10,000sf and 30 were for 10,000sf to 20,000sf. With assuming a median number of 5,000sf for 129 calls and 15,000sf for 30 calls, we conclude that new demand is at least 1,095,000sf, with approximately 645,000sf in small leases (<10,000sf) and 450,000sf in medium-size leases (10,000sf-20,000sf). However, given that only 30 to 50% of all new leasing inquiries end up being serious, we approximate the industrial demand to be 328,500sf-547,500sf. Page 11 of 18 Fishermen's Terminal Market Study The only inquires for spaces greater than 20,000sf within the BINMIC were from representatives of an indoor sport facility. This is not an indication that there is no demand for larger square footages, but inquiries were limited based on the limited large spaces available. BINMIC NEEDS AND PROJECTED DEMAND Prospective lessees are generally seeking smaller spaces of 10,000sf or less with good truck accessibility. Large tenants, such as seafood processors, that need 50,000+ sf will continue to move south for truck access, lower rent, and more affordable housing for its workforce. The smaller square footage needs will continue to increase within the City of Seattle, given that the majority of new developments within the Puget Sound Region target larger industrial tenants that are 50,000sf or greater. 2019 BINMIC LEASES In 2019, there were 13 industrial/flex leases that were signed within the BINMIC area (Table 1). Due to limitations in data reporting and collection, this does not include renewals. The types of spaces that were leased were generally 10,000sf or less, with at least one dock-high and/or grade level door for each tenant. Ceiling height was not a large concern as long as it was 18' or higher with the exception of breweries, distilleries, and sports facilities. There were no inquiries that mentioned ceiling height was too high, but 1/5th of the respondents mentioned some were too low. 24' ceilings appear to satisfy most tenants. The total square footage percentage of office space utilization varied from 5% to 28%. There were no requests for slabs more than the standard 6" reinforced slab with rebar. Power was not a substantial issue in the leased spaces. The standard 2500 Amps of 277/480V for an entire building in this market should be sufficient for all but heavy manufacturing. Table 1: 2019 BINMIC Leases Office Start Rent Lease Term # Building Tenant Type SF Sign Date Comments % ($/sf/mo) (Months) Salmon Bay Marine Center 1 - 1,500 Oct-19 - $2.17 12 flex space 2360 W Commodore Way 2 1515 NW Ballard Way - 11,527 Oct-19 - $1.20 123 warehouse/office C10 Building 3 - 2,991 Aug-19 - $1.00 24 3900 15th Pl W 2 months abated, 4 3455 Thorndyke Ave W - 5,320 Jul-19 - $1.90 60 18' clear height Page 12 of 18 Fishermen's Terminal Market Study Case Marine Bldg Candle 5 3,382 Jun-19 28% $1.75 60 $15/sf TI's 1100 NW 51st St Company Fomer Leclercq Marine 6 - 25,500 Jun-19 - $1.26 60 warehouse 1080 W Ewing St 12' clear height, 1 7 3257 17th Ave W - 6,942 May-19 0% $1.50 60 dock high, $3.60/sf TI's, 1 month abated Two story 8 2715 W Fort St Brewery 3,536 Apr-19 28% $1.37 60 warehouse/office building Industrial Praxair Building 9 Gas 5,619 Apr-19 17% $1.51 60 Lease Renewal 4442 27th Ave W Distributor Salmon Bay Marine Center 10 - 8,450 Apr-19 - $2.17 60 flex space 2356 W Commodore Way Building D- Salmon Bay 11 - 1,100 Apr-19 - $2.17 60 flex space 2284 W Commodore Way Sport Teatro Zinzani Bldg 3 months abated, 12 Helmet 8,066 Mar-19 14% $1.24 48 4027 21st Ave W $5.50/sf TI's Company 13 4020 23rd Ave W Dog Daycare 10,000 Jan-19 - $1.00 60 $0.70/sf TI's CURRENT LEASING OPPORTUNITIES WITHIN BINMIC Currently there are 22 buildings that have available industrial/flex space being actively marketed for lease in the BINMIC. Asking rent rates vary from $0.50/sf/mo NNN to $2.88/sf/mo NNN with triple net (NNN) costs running on average $0.26/sf/mo. NNN costs range from 0.08/sf/ mo to $0.51/sf/mo (Table 2). Table 2: Current Leasing Availabilities and Operating Expenses Size Rate NNN # Address Notes (SF) ($/sf/mo) ($/sf/mo) Elliott Mercer 1 6000 $0.50 $0.33 Warehouse 652 Elliott Ave W 2 920 Elliott Ave W 6,000 $1.67 $0.33 Flex/Office 3 1443 Elliott Ave W 3,050 $1.20 $0.12 Warehouse 4 151 Nickerson St 3,771 $1.50 $0.24 Flex/Office Page 13 of 18 Fishermen's Terminal Market Study Nickerson Business Center 5 2,577 $1.50 $0.51 Flex/Office 3837 13th Ave W Kvichak Marine 6 39,400 $0.88 $0.25 Warehouse 469 NW Bowdoin Pl Ballard Yard, Shed & Office 7 5,412 $1.11 $0.10 Warehouse/Office 324 NW Bowdoin Pl Salmon Bay Terminals 8 2,806 $1.50 $0.33 Warehouse 4025 13th Ave W 9 4111 Aurora Ave N 11,016 $1.10 $0.33 Warehouse Elmore Electric 10 3,250 $1.25 TBD Warehouse 2300 W Elmore St 11 4200 9th Ave NW 24,200 $0.95 $0.15 Warehouse 12 4237 24th Ave W 13,635 TBD $0.20 Warehouse 13 4441 26th Ave W 9,888 $1.50 $0.21 Flex/Office Commodore at Interbay 14 36,484 TBD TBD Warehouse 2601 W Commodore Way 15 811 NW 47th St 6,000 $1.15 TBD Warehouse 16 819-825 NW 47th St 14,261 $1.15 $0.20 Warehouse 17 1520 NW Leary Way 18,416 $1.50 $0.08 Warehouse Ballard Moser Building 18 9,597 $2.88 $0.50 Flex/Office 1110 NW 50th St Salmon Bay Center 19 3,100 $1.25 $0.25 Flex/Office 5305-5309 Shilshole Ave NW 20 Waypoint Marine 6,200 $1.40 - Flex/Office 5350 30th Ave NW UPCOMING NEW DEVELOPMENT WITHIN BINMIC There are few new developments within the BINMIC region and none are due to be delivered within the next 12 months. During our research, we found 6 permits filed for development (Table 3). Figure 8 shows the locations of each development. Table 3: New Industrial Development in BINMIC Address Description* A 4410 24th Ave W New 2-story industrial building with mezzanine and on-site parking. Page 14 of 18 Fishermen's Terminal Market Study 2327 W Commodore construct 3 story 21,000sf to 23,000sf warehouse/office with parking inside the building B Way for 20 vehicles. Two marine sales and service structures totaling 22,560sf and one 70,200sf mini- 2100 W Commodore C warehouse structure; surface parking for 126 vehicles; existing warehouse structure to be Way demolished. D 4207 22nd Ave W establish a general sales and services and construct new commercial building Demolish existing buildings, construct 130,000sf of light industrial space including 8,000sf E 1408 Elliott Ave W of street-level commercial space and 3 floor levels above grade. Retain existing 3-story warehouse building with caretaker's unit, demolish existing F 4000 6th Ave NW accessory 1-story open shed and enclosed storage structures and construct new 5-story industrial building. * Descriptions taken directly from the Department of Planning and Development's Permit Search Figure 8: Map of New Industrial Development in BINMIC Page 15 of 18 Fishermen's Terminal Market Study MARITIME INDUSTRIAL LEASING FACILITY REQUIREMENTS Based on the 2015 Madison Bay Commercial "Fishermen's Terminal Real Estate Demand Study and Fishing Cluster Economic Growth Model Study," the following insights still hold true and were taken into consideration in our recommendations: The configuration and location of the businesses supporting the North Pacific fleet varies widely; however, some common themes have been identified. The 2015 Fishermen's Terminal survey asked the maritime industrial vendors to provide feedback regarding the facility needs for their Seattle-area locations. Respondents clearly indicated a preference for industrial space with an office component. The median requirement for combined warehouse / shop space was 5,000 SF, while the median office requirement was 1,350 SF. "Within the required facilities, the maritime suppliers were split regarding warehouse ceiling height. Forty percent (40%) indicated it was important to have ceilings over 16 feet, while 49% placed little or no importance on ceiling height. Ceilings over 24 feet in height were important to 26% of the respondents. Similarly, survey respondents were divided by loading dock needs, with 32% stating that 48-inch dock-high loading is critical, 44% stating that grade level loading is important, and over half placing little or no importance on either type of loading doors. A truck court accommodating 53-foot container trucks is important to 36% of the respondents, while 47% placed little or no importance on accommodating these large trucks. Heavy power to the facility (in excess of 15 watts per SF) was of no importance to many of the suppliers; however, 25% said it was extremely important to their business. CURRENT MARITIME COMPANY REQUIREMENTS From our survey and conversations with multiple landlord representatives and users we've concluded a few maritime requirements in the region are: Pacific Northwest Fisheries requirement of 50,000sf+ currently searching in the Everett area for a processor and cold storage facility. Additional storage for vessels equipment and supplies. All the current locations are at capacity. Cold storage facilities in the area are currently at capacity and there is a need for more. Recently Lineage Logistics purchased City Ice and Seafreeze Ltd local cold storage operators and consolidated ownership of this product type in the area. Due to a lack of new development within the BINMIC most maritime requirements have mostly renewed their leases in their current locations. Page 16 of 18 Fishermen's Terminal Market Study RECOMMENDATIONS The product type we feel is the best to approach in this market is to create a shell "flex" warehouse building that has multiple options for office/retail and roll-up door access. Office/retail space percentages within the warehouse/flex structure should be left flexible to be built out by the Port based on each tenant's requirements. There is demand for accessory office but to maximize flexibility, flex office space comingled with industrial warehouse is an approach that we recommend. Build the shell warehouse than have the office space built internally for based on each lease requirement. If zoning FAR and height limit allows additional stories above 24' ceiling height of warehouse more office can be built above. This would be beneficial to the development based upon the limited amount of any new development in the market. LEASE STRUCTURE RECOMMENDATIONS Rental rates to be structured as $1.00/sf/mo NNN for the entire footprint of the space and an additional office rate addon of $1.50/sf/mo NNN based upon the amount of office square footage the tenant requires to be built out by the Port. Rent abatement per month should be budgeted month of rent per year of lease term, starting at a minimum 36-month lease. Tenant Improvement (TI) allowance should be budgeted up to $5.00/sf for lease terms of 60 months or greater. This TI allowance is in addition to the turnkey cost of tenant office buildout done by the Port. Market lease terms can vary from 12 to 120 months. Some tenants will require security for longer term predictability in cost. Other short-term tenants will prefer a flex transition space. In the case of shorter terms less than 36 months, there should be no lease concessions for the tenant. Rather, these deals should be structured "as-is" in exchange for the shorter lease. Lease renewal options can vary widely in this market, but we feel up to one 5-year option is sufficient in engaging tenant interest. BUILDING INFRASTRUCTURE RECOMMENDATIONS Building size of 10,000sf to 100,000sf. Based on tenant demand, we feel that 2,500-Amp 277/480-Volt, three-phase is sufficient. To allow maximum flexibility, every suite of 10,000sf or less should have one dock-high and one grade-level door. Page 17 of 18 Fishermen's Terminal Market Study Based on tenant feedback regarding ceiling clearance, a 24' ceiling height would provide maximum rentability and flexibility. Uses from breweries/distilleries want higher ceilings for their drum barrels and marine-related industries who store equipment find stacking storage more cost efficient. Slab thickness of 6" with 4,000psi reinforced at 24" on center is sufficient. Our study suggests that there are very few specialized manufacturing uses that require additional thickness. If this requirement does arise, the cost of cutting slab to pour a specialty slab can be discussed. Office requirement should not be initially built in, but turnkeyed by the Port for each tenant's need. Generally, we expect that 20 to 25% of the finished building will serve as office space. Page 18 of 18 Fishermen's Terminal Market Study Real Estate Outlook Matt Anderson, Heartland LLC Erwin Park, Madison Bay Commercial Real Estate 2 2010 to 2019: 20+mm SF Last 12 Months: 2.8mm SF Last 12 months absorption - Industrial 396,000sf 6 years positive 3,000,000+sf/yr Market 5.1% 2Q 2020 vacancy vs 6.1% Summary historical average 12 month vacancy change 0.8% Total regional market size 328,728,690sf Figure 2: Average Monthly Rental Rates ($/sf/mo as of Feb 2020) $1.40 $1.26 $1.20 $1.02 $1.00 $0.93 $0.80 $0.76 $0.71 $0.60 $0.40 $0.20 $0.00 King Kitsap Pierce Snohomish Thurston 3 BALLARD INTERBAY MIC Trends BINMIC Vacancy and Rental Rates Jan 2000-Mar 2020 4% $1.60 3% $1.40 $1.20 3% $1.00 2% $0.80 2% $0.60 1% $0.40 1% $0.20 0% $0.00 Vacancy Rate Monthly Rental Rate 4 Ballard Interbay MIC Industrial BINMIC vs Region Percent Change in Total Available SF 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 BINMIC Regional 5 6 Coronavirus and China trade tensions causing uncertainty Manufacturing slowdown, Ecommerce increasing Regionally Amazon Leases 1,306,071sf (2020 YTD) The Covid 2020 BINMIC industrial development permits Era: Now o 1408 Elliott Ave 138,000sf (Feb'20) o 1110 NW 45th St 86,000sf (Apr'20) Flex industrial space is a net loss due to demolition of existing supply 7 Capital is amassing specifically for industrial opportunities in gateway cities. The Covid Reordering of consumer goods supply chain will Era: Near continue to drive demand. Term Return of "essential" manufacturing? Rebounding of Boeing & its suppliers 8 Automation: C19 accelerates the existing trend Efficiency The Covid Fewer workers; higher skillsets (and pay) Era: Mid Term Urban Fulfillment Centers: Speed to customer Logistics Disruption creates new partnering opportunities. Disruption requires everyone to be more nimble. Port Stewardship Put assets to work with the long term in mind. Invest for impact. 9 Non-Airport Financial Performance and CIP Funding Capacity Analysis Commission Retreat July 29, 2020 Resiliency = Preparation for Negative Outcomes Commission Retreat June 4 Focused on 2020-21 time period Evaluated a framework based on two dimensions of uncertainty: Effectiveness of pandemic containment and of economic policy response Provided three scenarios of varying severity no clarity as to which is more likely 2021 Budget need to agree on one set of numbers Continued uncertainty about 2021 outcome currently no basis for one scenario being more likely than another Risk of over optimism far greater than risk of pessimism Recommendation: plan for worse outcomes Incorporate flexibility - easier to adapt to a better outcome than to a worse one 2 Initial Funding Analysis Extended financial projections to 2021-25 Conservative approach where downside risk in 2021 can more easily be managed by additional adjustments Key assumptions: Cruise activity: 2021 = 25% of 2021 forecast (Scenario #2 from Commission retreat) 2022 = partial recovery to 75% of 2022 forecast 2021 MD & EDD operating expense flat to revised 2020 budget and grows modestly (change from June scenario assumptions) Vacancy & bad debt in 2021 = 7% Conference and parking 2021 = 50% and 60% of 2020 budget No additional support to Airport from tax levy or G.O. bonds Tax levy increases 3% per year 2021-2023, then flat 3 Operating Cash Flow Cash flow after paying operating expense and debt service is used to fund capital investments Current projection is a least two years of negative cash flow and slow recovery Negative cash flow drains cash on hand 4 Debt Service Coverage 2019 the Port changed its debt service coverage target Negative cash flow means that the Port is not covering its debt obligations from income 5 General Fund Minimum target = 6 months of O&M, excludes debt service payments End of 2019, actual balance was well above minimum Excess is funding debt service usually paid from net income 6 Recommendation For Liquidity Management Increase the General Fund minimum 2021 Minimum 80 balance to provide liquidity for debt 70 service coverage 60 Insufficient debt service coverage and current 50 minimum General Fund balance target $ million 40 increases risk of insolvency in a deep and 30 sustained downturn 20 Add $30 million to minimum balance until 10 target coverage is achieved in 2025 0 Target Balance New target provides 2x debt service liquidity Additional Liquidity Current Minimum 7 Additional Financial Tools Borrow from Transportation & Infrastructure Fund (TIF) TIF includes Tax levy dollars previously set aside to fully fund various surface transportation commitments over the next 9 years (SR 509, FAST, Safe & Swift, Heavy Haul) Borrow $30 million to provide additional resources to help fund the five-year CIP Optional addition to General Fund minimum balance to manage revenue risk If more optimistic revenue assumptions are chosen, additional funds could added to mitigate the need for more drastic expense reductions in the event that actual revenues fall short of projections 8 Key Outcomes Funding available from MD and EDD CIP = $387 million 2021- 2025 (excludes NWSA and Cent. Services) Virtually all funding is from tax levy and G.O. bonds until 2025 General fund will be used for S. Harbor projects Debt service coverage target met in 2025 General Fund is at its minimum balance Port issues $285 million G.O. bonds maximum amount 2025 funding includes revenue bond issuance An $144 million funding shortfall exists of the five-year period 9 Capital 2021-2025 Non-Airport Funding 2021-2025 Non-Airport Funding Sources Funding is Operating Funds above Minimum $ 45,230 Operating Cash Flow 48,893 Constrained Grants 1,671 Malarkey Settlement for T117 12,000 Tax Levy 16,933 Harbor Development Fund 59,182 Future LTGO Bonds 285,000 Future Revenue Bonds (1) 100,719 Total Non-Airport Funding Sources $ 569,628 Non-Airport Capital Maritime & EDD CIP $ 531,642 NWSA - 50% Share (North & South Harbor) 131,996 NWSA - Contingency & Port Projects (2) 42,252 Allocated Central Services CIP 7,964 Total Non-Airport Funded Capital $ 713,854 Estimated Funding Surplus (Shortfall) $ (144,225) (1) available in 2025 (2) Includes "cushion", North Harbor channel deepening, and other 100% Port legacy costs. 10 Non-Airport Scenario Details $'000 2021 2022 2023 2024 2025 NWSA (plus depreciation) 41,088 42,549 42,922 44,433 42,644 Maritime 43,880 59,077 65,129 68,537 89,577 EDD 14,354 19,437 21,029 22,614 26,605 Total Revenue 99,323 121,063 129,080 135,584 158,826 Operating Expense (85,182) (88,944) (93,156) (94,943) (93,390) Operating Cash Flow 14,141 32,119 35,924 40,642 65,436 Non-Ops (2,102) (2,517) (2,496) (2,470) (2,469) Available to Pay Debt Service 12,040 29,602 33,428 38,172 62,967 Revenue Bond Debt Service 37,153 37,231 27,241 27,197 35,014 Net Cash Flow (25,114) (7,629) 6,187 10,975 27,952 Debt Service Coverage 0.32 0.80 1.23 1.40 1.80 11 To: Commissioners FROM: Aaron Pritchard RE: Commissioner Budget Priority Process DATE: 7.22.20 Commissioners will be discussing specific budget proposals heading for 2021 at the July 29th retreat. Each Commissioner will have about 6 minutes to discuss their ideas or thoughts about the request. Some of these may have merit and may take precedence over other considerations for the 2021 budget. In the January retreat Commissioners agreed to follow the budget process established over the last two years: 1) Commission specialist fill out the budget request template with request and seek input from ELT 2) Commissioner seek a second Commissioner, must have two in support for the proposal to be considered. 3) Commissioners discuss requests at July retreat 4) Submit all proposals to the Executive in early August. 5) Executive responds to Commission requests in first two weeks of September. Commissioner Steinbrueck, E.D Metruck and Dan Thomas support this approach for 2021. Commissioner Commission Priority Estimated Request Steinbrueck Portwide Art Implementation FTE $150,000 Steinbrueck Police Reform Consultant $250,000 Steinbrueck Resiliency Consultant $100,000 Felleman Tribal Relations Investments $175,000 Felleman Municipal Solid Waste to Energy Study with King County and Fact Finding Tour with $125,000 Felleman CFS Marketing / Education $10,000 FF/SB? Rural Eco Tourism Recovery Funding TBD Felleman Kelp Mariculture Economic Development Pilot Project $25,000 Felleman ORCA ECHO Program Consultant (Shared) $100,000 Cho Post COVID Economic Recovery Study $75,000 Cho Human Trafficking Certification Program $75,000 Cho Clean Boats Pilot Program $75,000 Cho Junteenth Holiday TBD Cho Student Loan Repayment Program TBD Calkins Offshore Renewable Industry Needs Assessment $75,000 Calkins Highline Public Schools WFD $250,000 Bowman Airport of the Future Consultant $75,000 Commission Add Commission Specialist (1 or 2) $300,000 Commission Commission Clerk $100,000 TOTAL $1,960,000 Cargo Industry News Splash 24/7.com July 16, 2020 Future sourcing, and the impact on liner shipping Re-shoring of industries post-coronavirus is a hot topic at the moment. Andy Lane from Singapore's CTI Consultancy crunches the numbers to assess what impact this shift could have on container movements. Stamford, Connecticut-based Gartner Inc ran a "Weathering the Supply Chain Storm" global survey during February and March 2020, soliciting feedback from 260 participants who are responsible for supply chains and related functions, covering a range of different industries. One of the key findings from this survey was that 33% of respondents said that they had either already relocated manufacturing activities out from China, or planned to do so within the next two to three years. Those surveyed were not necessarily the extremely high-volume shippers, and those that implied a shift out, might not have meant in totality. This is maybe not a brand-new trend, there have been several anecdotal reports over the past few years of Chinese manufacturers outsourcing some aspects of their production, mainly to north Vietnam. Manufacturing in coastal China is significantly more expensive than it was a decade or two ago, and with additional logistics challenges and costs associated with manufacturing in the deeper west of the country, that is not always a good option. A 30% shift results in an overall 12% decline The already two-year old trade spats, resulting in higher trade tariffs, will have had shippers considering alternatives, or at least partial alternatives. And then came the disruption to Chinese manufacturing as a result of Covid-19, were some critical supplies became harder to come by, causing further sourcing strategy thoughts. Supply chain diversification is now a widely mooted topic. Remaining as the 'world's factory' is not necessarily a strategy or an ambition of the Chinese government. But any reduction in this activity could only be gradual, as the sheer scale of Chinese manufacturing could simply not be accommodated even by a bunch of other large countries. If whatever is relocated ends up in other Asian countries, then that would be a zero-sum game for liner shipping. But another trending phrase has been "more regional supply chains", and that would have an impact for sure. The CEO's of CMA CGM and Hapag-Lloyd have recently mentioned and acknowledged that this could become a developing trend. On one hand, a shift from inter-continental to regional supply chains would be a positive from an environmental perspective, so long as the majority of trade continues to move on water. Reducing lead time from order-to-shelf can also be seen to be attractive for a number of commodities, not least fashion or perishables, and this also assists to reduce inventory. Although clearly the costs of manufacture plus inventory remain below the highly economical cost of inter-continental transportation, otherwise the shift would have happened already. To attempt to determine the potential impact of a shift from inter-continental to regional sourcing, one needs to have a holistic overview of current trade patterns and this is where the challenge starts. There are many sources of such information, and some congruity between them, but there are also differences. Container Trade Statistics (CTS) does have some good and deep data, but this is maybe less comprehensive when it comes to intra-regional trade. Seabury/DHL recently published a report showing that Intra-Asia was by far the largest tradelane at some 33.3 m teu per year. We can also call on Sea-Intelligence's highly comprehensive Trade Capacity Outlook product as another good source. Pulling all of these together, we can create a picture of the as-is teu*nautical miles of containerised transportation demand. If we take 10% of the current Asia-Europe and transpacific demand and place that into their own regional markets (Eastern Europe and predominantly Mexico respectively), the overall demand for global teu*nautical miles transportation reduces by almost 4%. A 30% shift results in an overall 12% decline. These are not necessarily huge numbers, but they come at a time when the idle fleet still registers 2m teu (~8%), so it would be another straw on the donkey's back, and a prolongation of getting back to a better (pre-2008) balance between supply and demand. Another issue here also is the quantity of jumbo-sized ships in the water or on order. These are particularly effective on longer haul routes, but inefficient on shorter (regional) ones. This is evidenced by the fact that the largest ships on the largest tradelane are generally below 5,000 teu capacity. In the eye of the storm, there can be several remedies touted for the future, but the memory is short and in better times we can forget what we thought we had learned, so there is certainly no guarantee that there will actually be a shift towards regional sourcing. Diversifying the supply chain to make it more resilient looks attractive, but this will increase costs overall, and therefore is an insurance premium. Maybe that insurance policy will never be bought. JOC Uncharted - July 16, 2020 COVID-19's economic drag deepens The surging COVID-19 pandemic will remain a drag on the US economy, slowing the country's emergence from a short but severe recession and postponing a full recovery until 2022, Nariman Behravesh, IHS Markit chief economist, said in a JOC Uncharted commentary Wednesday. The coronavirus disease 2019 (COVID-19) will determine the course of the economic recovery until a vaccine is developed, which may not be until sometime in 2021 or even later, Behravesh said. That means plenty of "ups and downs" rather than a V-shaped US economic recovery. "The path the economy is going to take will depend crucially on what will happen with the virus," rather than on factors that typically would guide a recovery, he said. IHS Markit projects a 20 to 25 percent chance for a W-shaped recovery, one with a second, less serious, downturn. "We've seen a very short, but very deep recession, the worst in 75 years, an event that is causing all kinds of damage and pain," Behravesh said. He acknowledged the US economy "bounced back" toward the end of the second quarter, but said that resurgence will fade. "What we're seeing is that a lot of high frequency indicators show a bounce that occurred in May and early June, but the bounce then faded," he said. The indicators Behravesh cited include IHS Markit's composite purchasing managers indexes and its materials price index. Those indexes rose steadily from the beginning of May through the middle of June, "and then they topped out," Behravesh said. "That had to do with the number of infections picking up again," as many southern and western states rolled back COVID-19 restrictions, he said. And the bounce back up for those indices and other economic indicators has not been as high as the initial drop in March and April. "Stimulus occurred early on, in a good and big way, but a lot of that is beginning to fade, too," Behravesh said. "We're looking at a very difficult situation." Caution: Economic bumps ahead For US shippers, importers, and exporters, that forecast suggests caution in budget planning and negotiating contracts with all types of freight carriers, and avoidance of too much exuberance amid temporary spikes in economic activity that are likely to occur. Unemployment numbers are an underlying reason for caution. Although the unemployment rate has dropped from 14.7 percent in March to 11.1 percent in June, the jobless rate and the number of unemployed are still up 7.6 percentage points and 12 million people from February. "You've had households and businesses whose finances have been absolutely clobbered," Behravesh said. "The only counterweight to that is the stock market, but tough household and business finances mean spending is going to be slow in coming back." What's more, many of those households will soon lose the stimulus received in the form of expanded unemployment benefits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Those benefits, worth an extra $600 a week, expire July 31. For the full year, US real gross domestic product (GDP) will drop 6.1 percent, with US unemployment staying above 10 percent through the third quarter, according to IHS Markit, the parent company of JOC.com. Global GDP is predicted to fall 5.5 percent from 2019. The recession will be worse in Europe, with the eurozone economy contracting about 9 percent and the United Kingdom's GDP falling by 12 percent, IHS Markit predicts. Japan's recession will also be deep, with GDP decreasing 5.2 percent, and emerging markets will fare worse. China is already beginning to recover, having been the first country hit by COVID-19 and an economic shutdown in the first quarter. But its recovery will be hobbled by a lack of global demand, Behravesh said. "You can't export much to the rest of the world," he said. Retail sales not all equal In the US, the continued spread of COVID-19 is already leading some states that loosened restrictions on gatherings and businesses to roll back their reopenings, at least temporarily. The second round of COVID-19 closures, Behravesh said, will not be as pervasive as the first. Some manufacturing sectors may have a chance at a V-shaped recovery yet, but the odds are stacked against a strong, sustained recovery, he said. "The decimation of supply chains and bankruptcies of small companies are going to make it very difficult to have a v-shaped recovery." US retail sales have made a strong recovery, fueling truck freight in June and early July, but they also have shifted. In June, total unadjusted retail sales were up 2.3 percent over a year ago, according to preliminary Census Bureau data. But non-store sales fared better than in-store sales. Non-store sales, including online shopping revenue, increased 30.2 percent year over year in June, without any seasonal adjustment. Home and garden and building materials retailers saw sales increase 22.3 percent year over year, also on an unadjusted basis. Food and beverage stores increased sales 11.4 percent from a year ago in June, but restaurants and bars saw sales decline 26.8 percent year over year as many restrictions on indoor dining and bars remained in place or were reintroduced. Many brick and mortar retail categories, including electronics, furniture, and clothing saw sequential monthly improvements from low points in April, but not year-over-year gains. These Census Bureau statistics point to an underlying shift in how and where consumers spend. That shift may indicate why truck demand is strong in certain sectors, but not others. E- commerce and in-store retail goods alike move to warehouses and distribution points by truck, whether truckload or less-than-truckload, as well as by parcel carrier. That's why some trucking companies are experiencing a "V" recovery, while much of the broader economy is not. And then there are areas of the economy where spending just isn't happening. "Airlines, hotels, cruises, conventions, all this stuff is not going to happen in 2020," Behravesh said. "The worst is probably behind us, but we're not out of the woods yet." Journal of Commerce July 13, 2020atest Fresh tariff threat could put pressure on westbound trans- Atlantic n EU imports to them A rush to get European imports into the United States before a potential wave of tariffs is imposed in August could further tighten westbound trans-Atlantic capacity in the coming weeks, increasing the risk of rolled cargo. There was front-loading of US imports from the European Union in January due the end of a comment period for retaliatory US tariffs, and now the end of a new public comment period leaves the window open for more tariffs. Alison Leavitt, managing director of the Wine and Spirits Shippers Association, told JOC.com. Leavitt said she is already seeing some of the association's members front-load imports to avoid the tariffs tied to the US-EU dispute over government subsidies to Boeing and Airbus. Current tariff on EU imports range between 15 percent and 25 percent and are levied on $7.5 billion worth of goods. The latest round of potential tariffs could be as high as 100 percent imports, according to a US Trade Representative notice. Separately, the Trump Administration on Friday announced that starting next year, it would impose a 25 percent tariff on $1.3 billion worth of imports from France, including cosmetics, soap, and handbags. US importers of French wine dodged the new tariffs, which were a retaliatory move against a French tax on US technologies companies. Wine and spirit shippers "are seeing bookings taken and then rolled. The alliances' planning (of blank sailings) is not what it should be," said Leavitt, adding that many of her members have already seen a surge of new demand tied to US shelter-in-place orders. Container lines in the second quarter blanked 12 percent of westbound capacity from North Europe and 14 percent of capacity from the Mediterreanean connecting to the North American east coast, and trimmed 4 percent of capacity from Europe to the North American west coast, according to Sea- Intelligence Maritime Analysis. The carriers are easing the amount of capacity they blank in the third quarter. Westbound capacity from North Europe and the Mediterreanean to the east coast of North American will be down 10 percent and 7 percent, respectively. Carriers have so far signaled that they will trim only 2 percent of capacity from Europe to the West Coast of North America, according to Sea-Intelligence. US imports from Europe were down 9 percent in the first half of 2020 compared to the same period a year ago, according to data from PIERS, a sister company of JOC.com within IHS Markit. The decline, however, has deepened in recent months, with volumes falling 20.9 percent in May and 16.9 percent in June. Bloomberg News July 10, 2020 China's Tough Talk on U.S. Sanctions Leaves Room to Cool Tension By now it's become a familiar pattern: the Trump administration takes an unprecedented action against China, Beijing vows retaliation and then life pretty much goes on as normal. That sequence played out again on Friday, with Chinese Foreign Ministry spokesman Zhao Lijian vowing "firm countermeasures" after the U.S. hit sitting Communist Party officials for the first time with sanctions under the 2016 Global Magnitsky Human Rights Accountability Act for abuses in the far western region of Xinjiang. The prime target, Chen Quanguo, sits on the 25- member Politburo and is seen as a rising star in the party. But analysts in China downplayed the move, saying that it was unlikely to derail the phase-one trade deal or lead to any more serious escalation. China's economy was already growing at the slowest pace in almost three decades before the pandemic hit, and officials have held off on measures that could spook foreign investors at a time when companies are reexamining supply chains. "Beijing is in a tough position," said Trey McArver, partner at consultancy Trivium China. "They don't want to look weak, but they are also keen not to further dial up tensions between the two countries, which seem to be spiraling out of control. I would expect some tough words from the Foreign Ministry, but nothing much beyond that at this moment." The U.S. action is tied to the widespread detention of Muslim Uighurs in Xinjiang, a policy that has been sharply criticized by top American officials as well as human rights groups. It comes amid soaring tensions between the world's biggest economies over the origin of the coronavirus pandemic, China's moves to quell dissent in Hong Kong and a debate over the use of Chinese technology by the U.S. and allies. Zhao, the foreign ministry spokesman, called the sanctions "deeply detrimental to U.S-China relations." He didn't give details of the reciprocal measures against "individuals and institutions," but said they would be known "soon enough." China also has one eye on any sanctions that still may come over Hong Kong. The U.S. has already imposed visa bans on unidentified officials responsible for undermining the former colony's autonomy, and President Donald Trump has threatened further actions against Beijing in light of a sweeping national security law that came into effect on June 30. Any sanctions against top national officials that sit next to Xi in Beijing would be considered more serious than lower-level functionaries that implement policy. 'Symbolic Significance' The timing of the sanctions against Chen and three other officials struck some observers as detrimental, given Chinese Foreign Minister Wang Yi had offered an olive branch just hours earlier. Though he blasted the U.S. for "McCarthy-style paranoia," he also said both sides could still "find ways to steer this relationship out of the difficulties and bring it back to the right track." "China's recent messaging, including Wang Yi, are striking a conciliatory tone and it doesn't want things to spiral out of control," said Wang Yiwei, director of China's Institute of International Affairs at Renmin University in Beijing. Besides, he said, the sanctions against Chen and others have a very small impact compared to other options. Chen has become China's point man for subduing ethnic unrest. During his earlier stint in Tibet, Buddhist temples were told to display Chinese flags and images of party leaders. His implementation of a vast police state in Xinjiang and demonstrations of loyalty to Xi won him a promotion in 2017 to the Politburo, and he may be considered for a spot on its supreme Standing Committee, which now has just seven members, in the coming years. There's little likelihood the officials named have financial connections with the U.S. The sanctions block access to accounts or businesses owned, directly or indirectly, by the people or the bureau. It also prohibits U.S persons from doing business with the sanctioned officials or entities. The move has "more symbolic significance than real impact," said Zhou Qi, director of the Institute of American Studies at the state-run Chinese Academy of Social Sciences. "If some of them were planning to send their sons and daughters to study in the U.S., there will likely to be some impact on them individually. But in the view of the general public in China, the sanctions may not be a big deal for China as a country." Any sanctions on Hong Kong could be more worrisome for companies. New legislation passed by Congress and awaiting Trump's signature would put global banks at risk of being caught between Beijing-backed penalties under the new national security law and sanctions being debated in the U.S. Senior officials have even discussed ways to undermine the Hong Kong dollar's peg to the U.S. dollar, although that remains a remote possibility. Further complicating matters is the U.S. election, in which Trump and Democratic presidential nominee Joe Biden have sought to taint each other as weak in confronting Beijing's leaders. This week Trump said the U.S. was considering a ban of TikTok, the popular social media app owned by China's ByteDance Inc. The U.S. is seeking to limit U.S. companies' ability to do business with Chinese tech giant Huawei Technologies Co., while Secretary of State Michael Pompeo has pushed for U.S. pension funds to cut ties with Chinese companies. Uncharted Waters "We're in uncharted territory right now," said Daniel Russel, former assistant secretary of state for East Asia and the Pacific, who's now vice president at the Asia Society Policy Institute. "There's never been an administration that thought the pursuit of top-level party officials would end well for either side." China has plenty of options to hit back if things were to get worse. It could hurt U.S. companies by releasing a long-threatened "unreliable entities" list, stop buying American products, unload Treasuries or curb exports to the U.S. of rare earths, which are critical to everything from smart-phones to electronic vehicles. On the diplomatic side, China could take measures such as halting cooperation on enforcing sanctions related to North Korea and Iran. Potentially worse than any individual action is the cumulative erosion in trust between the countries in recent years. In Wang's speech Thursday, China's foreign minister said it seems the U.S. believes "every Chinese investment has a political purpose, every student studying abroad has a spy background, and every cooperative initiative has an ulterior motive." "The sanctions will no doubt mar the political atmosphere for doing trade," said He Weiwen, who previously served as a commercial attache at the Chinese consulates in New York and San Francisco and is now a senior research fellow at the Center for China and Globalization in Beijing. "How do you trade with someone waving a knife at you?" Cruise Critic Weekly Report Week of July 6, 2020 Table of Contents Key Takeaways Cruiser Sentiment Survey Sales Insights Editorial Insights Email Insights Community Insights Social Insights Key Takeaways The EU recommendation story on guideline suggestions for cruise ships returning to service in Europe was a big hit across all three of our geos. It prompted us to run a survey on which of the suggestions people liked most, and which they were most turned off by. The initial results (below) have been somewhat surprising, in that people expressed apprehension over the concept of shorter cruise itineraries, for example, but were amenable to things like touchless embarkation and designated boarding windows. Over the past two weeks, we've been able to give readers a glimpse of what is going on onboard cruise ships. Even though the lines covered aren't big in terms of market share, they have proved popular among readers. Sentiment around those stories is positive, and traffic is high. The U.S. surge in COVID cases, coupled with the holiday, in July has resulted in large fluctuations in bookings. Cruise Sentiment Survey Booking intent remains strong, with 75% of respondents sharing that they will book a future cruise. A third of respondents (33%) are currently looking to book a cruise, and an additional 22% are unsure whether they will book a future cruise. Only 3% report they will not book a future cruise. Breaking down by age group: Respondents Aged 65+ 73% report they will book a cruise again 37% will book once travel restrictions and warnings ease, 31% are already looking to book a cruise, 5% will book once they receive their refund/FCC 23% are unsure whether they will book a future cruise 4% will not book a future cruise Respondents Ages 45-64 78% report they will book a cruise again 38% will book once travel restrictions and warnings ease, 36% are already looking to book a cruise again, 4% will book once they receive their refund/FCC 20% are unsure whether they will book a future cruise 2% will not book a future cruise Respondents Ages 18-44 82% report they will book a cruise again 43% will book once travel restrictions and warnings ease, 39% are already looking to book a cruise again 14% are unsure whether they will book a future cruise 4% will not book a future cruise Following news of the European Union's new cruise guidelines, we surveyed our readers on their opinions of the recommendations. Based on nearly 4,000 responses: Of the health and safety measures recommended, those that readers found most acceptable included: Denial of boarding for those with COVID-19 symptoms (91%) Air and ventilation protocols (79%) Touchless, digital embarkation with smaller groups and designated boarding windows (77%) Routine testing, temperature checks for both passengers and crew, and monitoring of symptoms (69%) Fitness center and spa distancing and disinfecting protocols (61%) Capacity restrictions to ensure that physical distancing can be maintained at all times (60%) No more self-serve food options (56%) Masks to be worn when physical distancing isn't possible (55%) Of the health and safety measures recommended, those that readers found least acceptable included: Shorter voyages (three to seven days in length) and fewer port calls (74%) Limited interaction, with cohort groups provided with set times for dining, onboard activities, etc. (45%) Fewer amenities in cabins, end to twice daily cabin service (43%) Elimination of indoor pools hydrotherapy pools and limits on the number of bathers allowed (39%) Sales and Operations Insights July has been a whirlwind of a month for trends so far, particularly in the US market. The July 4th holiday coupled with a surge in Covid cases has resulted in large fluctuations, particularly in bookings. The good news is that shoppers are still active on the site and increasing. Clicks are up 10% in the US, 6% in the UK and 30% in Australia. Bookings in June were surprisingly strong, but have dipped down now at the start of July due to the holiday and uncertainty. Shopping demand is still there, so we expect that bookings will start to pick back where June left off soon. Partner demand in the auction is also starting to increase, which is a sign that buyings signals are appearing elsewhere in the industry. For the bookings we are seeing in July, here are a few of the headlines: Average sailing date is now nearly 300 days out Caribbean is still the majority of bookings 2021 sailings for Europe, Med and Alaska have started to increase 7 Night cruises have been the most popular 3-5 night cruises have seen an increase 55+ cruisers are accounting for the majority of bookings Average passengers per cabin saw a slight increase, which shows family interest US Site: Included this week is July versus June for searches for 2020/2021/2022. Large changes can be seen in the US shoppers with much of the focus on dates that feel more comfortable further down the road. 2021 now accounts for 71% of searches, with 2022 taking a full 10% now. These are very large swings, but does go along with the sentiment survey that cruisers still want to cruise, but are weighing their options. US Site July US Site June UK Site: Reactions in the UK have not been as dramatic, but there continues to also be a push for 2021 sailings. UK Cruisers are still more optimistic of 2020 sailing dates though, with 21% of searches for Q4, which is the second highest quarter for searches. UK July Clicks UK June Clicks AU Site: The timeline for Australia has also shifted out a bit, but seems to be the most optimistic of all 3 geos. Over half of searches are between late Q4 and early Q1, with a huge focus on Australia, New Zealand and the South Pacific. AU July Clicks AU June Clicks Editorial Insights US Top-Performing News: 1. EU Releases Health Guidelines for Cruises: Masks, Social Distancing, No Indoor Pools 2. Which Cruise Ships Will Be Scrapped Or Taken Out of Service Because of the COVID-19 Pandemic? 3. World's First Big Ship Cruise Line to Resume Operations 4. Cruise Lines, Charter Cruises Start to Cancel Into 2021 5. When Are Cruise Lines Around the World Expected To Resume Service? Performance Summary: We're seeing strong interest in which ships might not return after the pandemic. This speaks to the loyalty our readers have for their favorites. We've tackled through pieces designed to allay some fears. Speculation on boards and from other outlets prompted us to provide context around this concept. The EU piece was a hit because it outlines clearly some steps cruise lines could take in Europe once they return. We were careful to outline that these were possibilities, but not probabilities. Additionally, we added a survey to this piece to ask people what they thought of the various proposals. Response was strong. US Top-Performing Features: 1. How Reassuring are New Cruise Cancellation Policies Really? 2. Cruise Critic Readers Speak: Changes Cruise Lines Could Make Post-Covid 19 3. Cruise Critic Survey: 76 Percent of Cruisers Want to Sail 4. Your Favorite Cruise Ship is For Sale? Here's Why You Shouldn't Panic 5. Photos from SeaDream's First Luxury Cruise Following the COVID-19 Lockdown Performance Summary: Like the news piece on ships being scrapped, we wrote the No. 4 piece to help allay fears from readers. It's done well, traffic-wise, and we saw a piece on decommissioned ships -- written long ago -- sneak up into the top 10 for the first time. Our No. 2 piece is based on really strong discussion happening on our message boards. We're doing more pieces aimed at bringing our readers' voices to the forefront. The No. 5 piece just shows pretty pictures of sailing, culled from social media. It's a simple approach, but people are really enjoying the photos. Content satisfaction -- readers can select their happiness by clicking a symbol for positive, negative, neutral, then opting to say why -- has been solid for this one in the early stages, though statistical significance hasn't been reached. People report being inspired by this article and also that they found it fun to read and enjoyed the photos. UK Top-Performing News: 1. Which Cruise Ships Will Be Scrapped? 2. EU Releases Health Guidelines 3. When Are Cruise Lines Around the World Expected to Resume Service? 4. P&O Cruises to Sell Oceana 5. Coronavirus: Updated Cruise Ship Policies And Cancellations Performance Summary: An interesting mix this week -- our two regulars (spots 3 & 5) make an appearance, but it looks as if people are also hungry for not directly-related-to-corona news, too Our top and 4th spot are closely related, with readers keen to find out about their favourite ships The EU Health Guidelines is people looking to what cruising might look like in the future and came with a survey that has already had a very large number of responses (stay tuned for a story on this) UK Top-Performing Features: 1. How Reassuring Are New Cruise Cancellation Policies? 2. Cruise Critic Survey: 76 Percent of Cruisers Want to Sail 3. Cruise Critic Readers Speak 4. What Cruisers Need to Know About Coronavirus 5. Photos From SeaDream's First Luxury Cruise Performance Summary: A real mix this week. The call out for the survey was top 5 last week and the results story performed well, too; as did our third-placed story -- readers are keen to know what others cruisers think And, in keeping with how well our news pieces about people actually sailing, the SeaDream story has performed well even though readers can't get on the ships yet AU Top-Performing News: 1. EU Releases Health Guidelines for Cruises: Masks, Social Distancing, No Indoor Pools 2. Which Cruise Ships Will Be Scrapped Or Taken Out of Service Because of the COVID-19 Pandemic? 3. What Europe Being Closed to Americans Means for European River Cruising 4. Just Back From Hurtigruten's Finnmarken: The First Cruise Ship to Set Sail, Post-Covid 5. When Are Cruise Lines Around the World Expected To Resume Service? Performance Summary: Aussies are keeping a keen eye on Europe, with three of these stories discussing the future or showing what the current cruise environment in Europe looks like. The No. 5 story has been in our top-5 in AU since we started tracking about a month ago. AU Top-Performing Features: 1. How Reassuring are New Cruise Cancellation Policies Really? 2. Cruise Critic Survey: 76 Percent of Cruisers Want to Sail 3. 10 Changes to the Cruise Industry That Made Things Better Than Before 4. Cruise Critic Readers Speak: Changes Cruise Lines Could Make Post-Covid 19 5. Will I Have to 'Social Distance' on My Next Cruise? Performance Summary: There wasn't a lot of movement this week among the most-popular stories, with three (2, 1, 5) appearing this week and last. Features numbers were the lowest of the quarter for AU; the shift to news story interest is strong in Australia, and it's not showing signs of changing. Email Insights Email Sends Survey Reveals 76% of Cruisers Want to Sail Again (July 1) Just In: 4th of July Cruise Sales for 2021 & Beyond (July 2) How Reassuring are New Cruise Cancellation Policies Really? (July 5) Most-Visited Content: How Reassuring are New Cruise Cancellation Policies Really? Which Cruise Ships Will Be Scrapped Due to the Pandemic? Just Back From The First Cruise Ship to Set Sail Post-Covid Readers Speak: Changes Cruise Lines Should Make Post-Covid 1 9 World's First Big Ship Cruise Line to Resume Operations Performance Summary: Our audience continues to be very interested in the latest cruise news as it relates to the pandemic's impact on the industry, increasingly on what the future of cruise looks like and what the experience will be, along with service pieces that can help them to make decisions about currently booked or future travel. What's happening with cruise ships (will they be scrappe d or sold?) is of particular interest this week. ** UK and AU emails are largely the same as the US emails, and are experiencing the sam e trends. Should any differences unique to these geographies arise, we'll be sure to note . Noticeable declines in engagement with emails sent to the Australian Cruise Criti c audience indicating fatigue and frustration over the state of cruising in the region due t o the pandemic. Community Insights It's Time to Move on From 2020 The original poster (OP) pleads with cruise lines to stop cancelling in segments and just pull all 2020 sailings to focus on getting to a safe place for 2021, and allow cruisers to refocus their attention: "Give us a detailed plan on what they can and are doing to make cruising 'safe' in the Covid era. Cruising will return. Why force it and fail. Plan it, work the plan and spend the time and energy to let us all know what they will do and tell us what we will need to do so we can resume planning for a cruise that should happen." Others chimed in with a number of responses -- from reasons the cruise lines are likely unable to do that (contracts, finances, etc.), to others saying they've already come to that personal realization and have begun to focus on 2021 and beyond themselves. Social Distancing on a Cruise Ship Cruisers debate the concept of social distancing on a cruise, and whether they would be up for the option. OP says that the reason they cruise is to socialize with others, and many agree that too many restrictions will keep them from cruising in the near future. Others share they would be open to it (some even preferring it). Social Media Insights Top Performing Posts: Survey Reveals 76% of Cruisers Want to Sail Again Norwegian & Royal Caribbean Team Up to Create Cruise Health & Safety Protocols The European Union Releases Health Guidelines for Cruises Performance Summary: People want to cruise, but are concerned about the current land-based spread of the virus. There are a significant number of followers who are eager to return to sea and many who have future cruises booked and are optimistic that they will sail. There are also many followers who welcome any progress made to get them back to sea as soon as they can safely. But the rising number of cases in the U.S. are a concern to many -- both in how the public will respond to recommendations and protocols put in place by cruise lines, and in how quickly they'll be able to return to cruising if U.S. numbers continue to rise and destinations are closed to Americans. Cruisers do not favor a ton of restrictions. Far and wide, the comments around the EU cruise guidelines were not favorable -- most people thought the proposed restrictions went too far for them to be willing to cruise under those guidelines. Many others anticipate cruise fares to go up in light of capacity decreases, which makes them even less willing to feel too restricted. North America Equity Research 08 July 2020 Cruise Lines Monthly Pricing Trends Ticket Prices Continue to Slide for 1Q21 Sailings; 2Q21 Prices Stable; Cruise Web Traffic Trending Near Lows July cruise ticket data indicated continued moderate pricing cuts for 4Q and 1Q21 Cruise Lines sailings, while 2Q21 prices remained stable. Brandt Montour, CFA AC Based on our data, YTD gross ticket prices for 4Q sailings have declined 14%, 9%, (1-212) 622-1111 and 11% for CCL, RCL, and Norwegian, respectively. For 1Q21 sailings, YTD % brandt.a.montour@jpmorgan.com declines are down 3%, 11% and 8%, respectively. 2Q21 prices were essentially Bloomberg JPMA MONTOURunchanged with last month and, by and large, are holding up well. See Figures 1-3 for Joseph Greff (1-212) 622-0548 a summary of YTD pricing changes. joseph.greff@jpmorgan.com This month, we took a look at web traffic for major cruise lines/brands. Total volume Omer N Sander (desktop and mobile visits) for the big three operators, according to data from (1-212) 622-2684 SimilarWeb, is tracking down 74% y/y, at/near the lows to date, and does not appear omer.n.sander@jpmorgan.com to be getting less bad. This comes as no surprise given that companies have mostly Daniel Politzer, CFA (1-212) 622-8170 turned off marketing. Still, it contrasts with recent operator commentary that bookings dan.politzer@jpmchase.com are getting less bad, which to us indicates that current/new bookings are primarily J.P. Morgan Securities LLC coming through the still dominant travel agent channel. We plan to watch web traffic closely from here as a potential leading indicator of new-to-cruise travelers reengaging with the industry/product. See Figures 4-11. 4Q20 Price Trends. For CCL in July, 4Q ticket prices decelerated to down 11% y/y from down 10% last month, with more sailing cancelations across all regions adding noise to the data. For RCL, ticket prices appeared to stabilize somewhat (down 6% y/y vs. down 9% last month), improving marginally month-over-month in the Caribbean and Bahamas. We note this only reverses some of what was a more meaningful price cut for these sailings last month. NCLH/Norwegian prices decelerated to down 7% y/y, from down 5% last month, driven by a meaningful stepdown in Caribbean prices (down 10% month-over-month). 1Q21 Price Trends. For CCL, 1Q21 ticket prices were stable with last month at up 3% y/y. For RCL, ticket prices in July decelerated significantly to down 9% y/y from down 2% last month. Tickets in the Caribbean and Bahamas saw MSD % cuts m/m, and LSD% in Asia. NCLH ticket prices decelerated to down 7% y/y, from down 5% last month, driven by the Caribbean and Bahamas. 2Q21 Price Trends. CCL ticket prices for 2Q21 sailings were stable in July versus June at up 1% y/y. The Caribbean decelerated slightly to down 3% y/y, which was offset by strength in Europe. For RCL, prices were also stable, with only margin weakness in the Bahamas (down 2% m/m); all other regions were unchanged with June pricing. NCLH prices were unchanged with last month, at +1% y/y. Caribbean prices. Prices for 4Q20 Caribbean sailings in July were +1% for CCL/RCL and down 11% for Norwegian month-over-month. YTD 4Q Caribbean prices are now down 8%, 11% and 12% for CCL, RCL and NCLH. Prices for 1Q21 Caribbean sailings declined 1%, 5%, and 2% month-over-month for CCL, RCL, and NCLH respectively. YTD 1Q Caribbean prices are down 2%, 12% and 6% for CCL, RCL and NCLH. Prices for 2Q21 Caribbean sailings declined 1%, 0.5%, and 0.5% month-over-month for CCL, RCL, and NCLH respectively. YTD 2Q20 Caribbean prices are down 3%, 2% and flat for CCL, RCL and NCLH. See page 26 for analyst certification and important disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com European prices. The U.S. and global brands tracked within this report do not have large European sailing seasons outside of the 3Q (which is currently not comparable in 2020's data, given cancelations). However, we note a large differential in pricing performance for the (small) amount of sailings in 4Q20 vs 2Q21. CCL, RCL and NCLH's 4Q20 European ticket prices are down mid-teens % YTD and are flattish YTD for the 2Q20. Bahamas prices. Near-term ticket prices in the Bahamas appeared to stabilize in July after several months of pricing cuts. In July, 4Q Bahamas tickets improved 1%/2% m/m for CCL/RCL. YTD 4Q Bahamas prices are down 16% and 14% for CCL and RCL. Prices for 2021 continued to slide: 1Q21 Bahamas prices declined 2%, 4%, and 7% month-over-month for CCL, RCL, and Norwegian respectively. YTD 1Q21 Bahamas prices are down 13%, 21% and 18% for RCL, CCL and NCLH. Prices for 2Q21 Bahamas sailings declined by 2% month-over-month for both CCL and RCL. Asia prices. Ticket prices have been the relative bright spot across operators since prices started to come down in April, with RCL appearing to outperform. YTD gross ticket prices for 4Q sailings in Asia are down 10% for CCL, and only 3% for RCL. YTD 1Q21 prices are down 6% and 3%, respectively, while both are flattish over for 2Q21 sailings (down LSD y/y). Thoughts on pricing trends. Operators during the 1Q earnings season cited 2021 cumulative pricing down MSD % (NCLH) to up MSD % (RCL); CCL's 2Q preannouncement in June noted cumulative 2020 prices were down low- to mid-single digits. While there is some discrepancy here as compared to our data, it's essentially in the same realm, i.e. much better than what investors expected looking out from the depths of this crisis in March/April. The industry appears to be making an effort to protect pricing in this downturn, aided by the unique position of zero near-term supply and an unknown restart date, no real ongoing marketing efforts, and a large amount of future cruise credits operators would probably like to have absorbed to some extent at current prices (at this point, it still seems like a majority of FCCs remain un-booked). We expect pricing to continue to bleed lower into the 2H20 and wave season/1Q21 as these forces reverse, i.e. moving closer to prime booking period for 3Q21 sailings when operators will (hope to) have most of their (older) capacity come back online and will have to re-engage new cruisers, which was anywhere from 1/3-1/2 of mix pre COVID-19. Thoughts on RCL + NCLH health and safety collaboration. On July 6th, RCL and NCLH announced the "Healthy Sail Panel," a joint initiative that brings together leading public health experts to develop enhanced cruise health and safety; its findings will be open source and available to others in the industry. The panel appears to have been in the works for 1-2 months now, and the official word is that the CDC reacted to the news "warmly" (it's been invited to observe the panel's progress). The pending submission to the CDC for resuming operations still has to come from the operators themselves, though this panel's work is likely to deeply influence those plans/submissions. That said, we don't see this news changing the timeline of a potential CDC agreement, which still does not feel imminent to us, and the recent resurgence of cases in the southern U.S. states where most drive-to ports are located isn't helping. Lastly, we believe one theme the panel will pursue is the opportunity to ultimately make cruises relatively safer than alternative vacations, underpinned by the fact that cruise ships are by nature controlled environments, and it's plausible that cheap/fast testing (at port) could virtually eliminate or significantly reduce the risk the virus can make it onboard in the first place. Read on. 2 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Table of Contents Pricing Trends YTD Summary ..............................................4 Cruise Web Trends...................................................................5 A Closer Look at 4Q20 .............................................................8 A Closer Look at 1Q21 ...........................................................13 A Closer Look at 2Q21 ...........................................................17 Booking Trends Company Commentary ...........................22 Summary of Company Drivers, Estimates, and Valuation..23 Back-Testing Pricing Data .....................................................24 Monthly Cruise Pricing Methodology ...................................25 3 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Pricing Trends YTD Summary Figure 1: YTD Gross Ticket Price Changes by Operator Figure 2: YTD Gross Ticket Price Changes ONE MONTH PRIOR Average gross ticket price per diem total YTD % declines for sailings Avg. gross ticket price per diem total YTD % declines for sailings scheduled in 4Q20, 1Q21 and 1Q21 (as of July 1st) scheduled in 4Q20, 1Q21 and 1Q21 (as of June 1st) CCL RCL Norwegian CCL RCL Norwegian 0% -1% -1% -1% -3% -3% -3% -2% -5% -8% -9% -7% -11% -8% -11% -10% -14% -11% 4Q20 Sailings 1Q21 Sailings 2Q21 Sailings 4Q20 Sailings 1Q21 Sailings 2Q21 Sailings Source: Cruise Analytics, J.P. Morgan Source: Cruise Analytics, J.P. Morgan Figure 3: Summary of YTD Gross Ticket Price Changes by Region and Brand Average gross ticket price per diem total YTD % declines for sailings scheduled in 4Q20, 1Q21 and 2Q21 Per Diems YTD % Decline Per Diems YTD % Decline By Region 4Q20 Sailings 1Q21 Sailings 2Q21 Sailings By Brand 4Q20 Sailings 1Q21 Sailings 2Q21 Sailings CCL -14% -3% 0% CCL Caribbean -8% -2% -3% Carnival -14% -10% -4% Bahamas -16% -13% -5% Princess -13% 4% 2% Europe -19% 2% 1% Holland America -16% -2% -1% Asia -10% -6% 0% RCL RCL -9% -11% -3% Royal Caribbean -6% -9% -3% Caribbean -11% -12% -2% Celebrity -16% -13% -3% Bahamas -14% -21% -11% Europe -16% -2% Asia -3% -3% 0% Norwegian -11% -8% -1% Caribbean -12% -6% 0% Bahamas -22% -18% 0% Europe -13% -4% Note 2Q21 YTD is measured as July 1st vs. April 1st, and pricing in April was mostly similar to that of January. Source: Cruise Analytics, J.P. Morgan 4 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Cruise Web Trends Figure 4: Cruise web traffic is tracking at/near the lows Total weekly website visits (desktop + mobile) % y/y 40% 20% 0% -20% -40% -60% -80% CCL RCL NCLH -100% 01 9 0 02 0 02 0 02 02 0 02 0 0 02 0 02 0 02 0 0 0 0 0 0 0 0 02 0 0 02 0 02 0 02 0 02 0 02 0 02 0 02 0 02 02 02 02 02 02 02 02 02 02 0 /2 6/ 2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 /2 12 1/ 2 1/ 9 1/ 16 23 1/ 1/ 30 2/ 6 2/ 13 20 2/ 27 3/ 5 12 19 26 4/ 2 4/ 9 16 23 4/ 4/ 30 5/ 7 5/ 14 5/ 21 28 5/ 6/ 4 11 6/ 18 25 2/ 3/ 3/ 3/ 4/ 6/ 6/ Source: SimilarWeb. This month, we took a look at web traffic for major cruise lines/brands. Total volume (desktop and mobile visits), according to data from SimilarWeb, is tracking down 74% y/y, at/near the lows to date, and does not appear to be getting less bad. This comes as no surprise given that companies have mostly turned off marketing. Still, it contrasts with recent operator commentary that bookings are getting less bad, which to us indicates that current/new bookings are primarily coming through the still dominant travel agent channel. Company-level web traffic data is unsurprisingly tracking in a narrow range among major brands, with RCL's brands doing the least bad, then NCLH's, and then CCL's major brands, at down 61%, 67%, and 71% y/y, on average, over the past 4 weeks (total visits). The big 3's brands appear to be doing slightly better than other major U.S. cruise brands (Disney cruises, MSC USA and Viking) at down 73% y/y, collectively. At the brand level, we note RCL's Celebrity brand is seeing the least bad trends, at down "only" 48% y/y over the last month, which is interesting given an older average age demographic than the contemporary brands. The Carnival brand, which has one of the younger average age demographics in the industry, had the second least bad trends in web traffic and was outperforming up until June. The worst performing brands appear to be Princess, Holland America, Silversea, Regent and Oceania, all brands that cater to older guests, though we note the data sets are less robust for the smaller brands in this list. 5 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Figure 5: All major CCL brands' web traffic are trending lower Figure 6: RCL's Celebrity brand outperforming Total weekly website visits % y/y Total weekly website visits % y/y 60% 40% 40% 20% 20% 0% 0% -20% -20% -40% -40% -60% -60% -80% -80% -100% -100% Carnival Princess Holland America AIDA Costa Royal Caribbean Celebrity Silversea Source: SimilarWeb. Source: SimilarWeb. Figure 7: Norwegian brand web traffic at/near the lows Figure 8: U.S. Cruise industry overall Total weekly website visits % y/y CCL, RCL, NCLH, Disney Cruises, MSC, Viking - Total weekly visits % y/y 20% 0% 10% -10% 0% -20% -10% -30% -20% -40% -30% -50% -40% -50% -60% -60% -70% -70% -80% -80% Source: SimilarWeb. Source: SimilarWeb. Figure 9: Pages per visit has trended steady to better as of late Figure 10: Contemporary Brands' Unique Web Visit Share Ratio Carnival, Royal Caribbean, and Norwegian brands only Carnival, Royal, Norwegian relative % share of visits / % share of berths; 1.00 = Brand's share of web traffic is equal to its share of berths 14.0 1.40 12.0 1.20 10.0 1.00 8.0 0.80 6.0 0.60 4.0 0.40 2.0 0.20 0.0 Carnival Royal Caribbean Norwegian 0.00 CCL RCL NCLH Source: SimilarWeb. Source: SimilarWeb, JPM. 6 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Historical lookback. The lack of reporting detail at the cruise brand level and SimilarWeb's limited history (back to June '17) make back-testing this data difficult. However, with the few data points we have, we do note a directional relationship between our historical predicted cruise ticket price growth y/y and web traffic % y/y 3-6 months prior to the quarter, which coincides with the prime booking period. Figure 11: Cruise web traffic shows directional relationship with our forward ticket pricing data Includes all major cruise brands for the Big Three operators; NCLH is just Norwegian 4.0% 12.0% 10.0% 3.0% Ticket 8.0% 2.0% 6.0% 4.0% 1.0% 2.0% 0.0% 0.0% -2.0% -1.0% -4.0% -2.0% -6.0% 1Q19 2Q19 3Q19 4Q19 CCL Predicted Ticket Price CCL Web Traffic 3-6 months prior 12.0% 70.0% Ticket 10.0% 60.0% 50.0% 8.0% 40.0% 6.0% 30.0% 4.0% 20.0% 2.0% 10.0% 0.0% 0.0% 1Q19 2Q19 3Q19 4Q19 RCL Predicted Ticket Price RCL Web Traffic 3-6 months prior 10.0% 60.0% 8.0% 50.0% Ticket 40.0% 6.0% 30.0% 4.0% 20.0% 2.0% 10.0% 0.0% 0.0% 1Q19 2Q19 3Q19 4Q19 NCLH Predicted Ticket Price NCLH Web Traffic 3-6 months prior Source: SimilarWeb, Cruise Analytics, JPM. 7 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com A Closer Look at 4Q20 Figure 12: Global 4Q20 Itineraries Ticket Price Changes (% y/y) ~39% Caribbean, ~21% Europe, ~15% Asia Pacific 4Q20 Global Ticket Price % chg. y/y 15% 10% 5% CCL 0% RCL -5% NCLH -10% -15% Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 CCL -2% -3% 0% 0% 2% -1% -2% -2% -4% -10% -11% RCL 7% 8% 11% 11% 10% 6% 1% -7% -9% -6% NCLH 1% 3% 4% 0% 2% 0% 2% 2% -5% -7% Source: Cruise Analytics, J.P. Morgan 4Q20 Analysis. For CCL in July, 4Q ticket prices decelerated to down 11% y/y from down 10% last month, with more sailing cancelations across all regions adding noise to the data. For RCL, ticket prices appeared to stabilize somewhat (down 6% y/y, vs. down 9% last month), improving marginally month-over-month in the Caribbean and Bahamas. We note this only reverses some of what was a more meaningful price cut for these sailings last month. NCLH/Norwegian prices decelerated to down 7% y/y, from down 5% last month, driven by a meaningful stepdown in Caribbean prices (down 10% month-overmonth ). 8 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Figure 13: Caribbean 4Q20 Itineraries Ticket Price Changes (% y/y) ~39% of Global Capacity 4Q20 Caribbean Ticket Price % chg. y/y 20% 15% 10% CCL 5% 0% RCL -5% NCLH -10% -15% Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 CCL -7% -4% -1% -1% 0% -1% 0% -2% -6% -11% -7% RCL 7% 10% 14% 13% 14% 8% 3% -5% -9% -7% NCLH 3% 5% 6% 5% 8% 9% 4% 3% -3% -11% Source: Cruise Analytics, J.P. Morgan Figure 14: European 4Q20 Itineraries Ticket Price Changes (% y/y) ~21% of Global Capacity 4Q20 Europe Ticket Price % chg. y/y 20% 15% 10% 5% CCL 0% -5% RCL -10% NCLH -15% -20% -25% Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 CCL -1% -2% -2% -3% -4% -7% -10% -11% -12% -19% -22% RCL 8% 6% 11% 14% 5% 1% 2% -11% -8% -7% NCLH 8% 6% 7% 1% 0% -3% 0% 4% -3% -3% Source: Cruise Analytics, J.P. Morgan 9 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Figure 15: Asia 4Q20 Itineraries Ticket Price Changes (% y/y) ~15% of Global Capacity 4Q20 Asia Ticket Price % chg. y/y 20% 15% 10% 5% CCL 0% RCL -5% -10% -15% ##### ##### Nov-19 ##### ##### ##### ##### ##### May-20 ##### Jul-20 CCL 10% 5% 12% 11% 15% 10% 8% 7% 6% 4% 5% RCL 7% 4% 4% 6% 3% 3% -4% -8% -9% -8% Source: Cruise Analytics, J.P. Morgan 10 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Figure 16: CCL 4Q20 Itineraries By Brand and Region $ PPD, % y/y change, and # of itineraries in data sample 4Q19 4Q20 May-19 Jun-19 Jul-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 CCL $178 $176 $173 $184 $182 $182 $181 $179 $177 $176 $174 $171 $159 $154 y/y % chg 0.2% -0.9% -1.5% -2.1% -2.6% 0.4% 0.2% 1.6% -1.1% -1.7% -2.4% -3.8% -10.0% -11.2% # of sailings 1121 1121 1121 866 1103 1103 1099 1103 1102 1123 1123 1102 999 841 Caribbean $142 $142 $139 $134 $139 $139 $139 $139 $142 $142 $139 $134 $126 $129 y/y % chg 5.1% 4.9% 2.0% -6.8% -3.5% -1.0% -1.0% -0.4% -0.7% -0.4% -2.4% -5.7% -11.4% -7.1% # of sailings 287 287 283 228 252 252 252 251 251 251 251 248 248 216 Mexico $143 $141 $135 $123 $143 $143 $143 $143 $144 $147 $142 $134 $117 $120 y/y % chg 3.3% 1.3% -3.4% -17.8% -2.0% -0.4% 0.6% 2.8% 0.7% 1.2% -0.6% -6.0% -16.9% -11.2% # of sailings 75 75 75 62 76 76 76 80 84 88 89 89 87 76 Bahamas $130 $132 $132 $124 $127 $127 $127 $127 $128 $127 $121 $115 $105 $106 y/y % chg 4.7% 3.5% 1.8% 0.2% 2.4% 3.1% 3.1% 1.6% 1.4% 0.4% -5.7% -11.5% -20.1% -19.6% # of sailings 96 96 100 109 120 120 120 120 119 119 119 118 118 101 Atlantic $200 $199 $197 $177 $177 $175 $174 $174 $172 $175 $169 $171 $173 $152 y/y % chg 1.4% 0.8% 4.2% -17.8% -17.4% -15.5% -14.9% -13.1% -14.4% -13.0% -15.4% -14.5% -12.8% -23.0% # of sailings 76 76 76 34 36 36 36 36 36 34 34 31 27 22 Europe $199 $198 $197 $200 $196 $196 $196 $190 $185 $180 $177 $175 $160 $154 y/y % chg 6.3% 5.6% 4.1% -0.6% -2.4% -2.1% -2.5% -3.9% -7.1% -9.9% -11.1% -12.2% -19.2% -22.1% # of sailings 306 306 306 219 291 291 290 290 287 294 294 294 257 206 Asia $177 $174 $172 $211 $202 $202 $201 $201 $194 $191 $191 $188 $182 $180 y/y % chg -9.2% -10.1% -7.1% 9.9% 5.3% 12.5% 10.8% 15.1% 10.1% 8.0% 7.1% 6.2% 4.4% 4.6% # of sailings 119 119 119 105 160 160 160 160 161 166 165 165 152 145 Carnival Brand $130 $130 $130 $127 $130 $130 $130 $130 $132 $130 $126 $120 $112 $112 y/y % chg 2.7% 1.5% 0.1% -1.0% 1.6% 1.8% 2.3% 2.2% 2.8% 2.4% -2.0% -7.2% -14.1% -13.3% # of sailings 415 415 415 399 432 432 432 436 439 438 439 431 431 361 Caribbean $129 $129 $129 $126 $129 $129 $129 $129 $131 $129 $126 $120 $113 $114 y/y % chg 3.3% 2.2% 1.3% -0.9% 1.9% 1.8% 2.3% 2.2% 2.7% 2.2% -1.3% -6.5% -13.0% -11.4% # of sailings 237 237 233 203 219 219 219 219 219 216 216 213 213 182 Mexico $125 $126 $124 $123 $123 $123 $123 $128 $132 $133 $128 $118 $103 $103 y/y % chg 1.9% 1.1% -4.1% -1.6% -1.4% -1.1% -0.9% 2.0% 4.4% 6.4% 1.7% -6.1% -18.1% -16.7% # of sailings 57 57 57 62 62 62 62 66 70 74 75 75 75 64 Bahamas $130 $132 $132 $124 $126 $127 $127 $126 $127 $126 $120 $115 $105 $106 y/y % chg 4.7% 3.5% 1.8% 0.2% 2.1% 2.7% 2.8% 1.3% 1.1% -0.1% -6.2% -12.1% -20.4% -20.0% # of sailings 96 96 100 109 119 119 119 119 118 118 118 117 117 100 Princess Brand $186 $185 $179 $238 $206 $205 $204 $205 $208 $209 $208 $203 $184 $179 y/y % chg -1.4% -2.0% -4.9% 17.5% 2.6% 13.5% 12.9% 13.7% 11.8% 11.3% 11.5% 9.2% -0.4% 0.0% # of sailings 205 205 205 85 199 199 199 200 200 206 206 206 131 113 Caribbean $158 $160 $152 $171 $171 $171 $180 $199 $212 $213 $206 $193 $194 y/y % chg 3.2% 6.7% 1.8% 5.4% 25.3% 22.6% 20.2% 26.3% 32.9% 34.5% 30.9% 20.8% 27.7% # of sailings 22 22 22 13 13 13 13 13 13 13 13 13 13 Europe $276 $274 $274 $288 $288 $288 $284 $273 $278 $277 $268 $254 y/y % chg 24.1% 23.2% 23.2% -0.6% -0.2% 5.1% 3.6% -0.4% -0.1% 0.6% -3.1% -7.9% # of sailings 24 24 24 20 27 27 27 27 27 27 27 27 0 0 Asia $183 $183 $180 $265 $213 $213 $213 $214 $208 $199 $199 $197 $189 $185 y/y % chg -6.8% -6.5% -8.6% 33.8% 7.9% 19.7% 19.3% 21.6% 16.5% 10.7% 9.0% 7.4% 3.5% 2.7% # of sailings 63 63 63 23 67 67 67 67 67 71 71 71 58 51 Holland America Brand $205 $198 $189 $213 $214 $214 $212 $209 $205 $204 $201 $198 $181 $176 y/y % chg -2.9% -5.4% -3.7% -10.6% -9.9% -10.3% -8.7% 1.2% -4.7% -4.9% -3.7% -3.3% -8.7% -6.6% # of sailings 148 148 148 113 131 131 128 127 125 135 135 124 96 86 Caribbean $180 $175 $156 $188 $189 $190 $190 $186 $185 $175 $173 $172 $166 $165 y/y % chg 13.1% 14.6% 16.1% -11.3% -10.9% -9.6% -9.6% 1.2% -6.2% -11.0% -9.4% -4.3% -5.1% 5.8% # of sailings 26 26 26 24 19 19 19 18 18 22 22 22 22 21 Europe $241 $237 $231 $248 $248 $249 $251 $258 $252 $250 $245 $242 $227 $227 y/y % chg -5.1% -7.0% -7.9% -8.3% -7.9% 18.4% -4.5% 11.1% 5.4% 3.9% 2.2% 0.3% -4.3% -2.0% # of sailings 19 19 19 19 19 19 19 19 19 19 19 19 9 9 Asia $197 $185 $182 $196 $198 $198 $197 $194 $188 $189 $187 $179 $161 $161 y/y % chg -6.4% -11.8% -2.7% -16.2% -15.3% -15.2% -15.1% -3.5% -8.8% -7.6% -8.7% -9.4% -13.2% -11.5% # of sailings 21 21 21 12 16 16 16 16 16 18 18 20 20 20 Costa Brand $161 $161 $161 $154 $160 $160 $160 $155 $150 $146 $145 $145 $145 $139 y/y % chg 10.6% 10.6% 9.4% -4.7% -1.1% -1.0% -1.5% -4.0% -7.4% -9.8% -10.1% -10.0% -10.1% -13.6% # of sailings 296 296 296 215 286 286 285 285 283 289 288 288 288 241 Source: Cruise Analytics, J.P. Morgan 11 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Figure 17: RCL & NCLH 4Q20 Itineraries By Brand and Region $ PPD, % y/y change, and # of itineraries in data sample 4Q19 4Q20 May-19 Jun-19 Jul-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 RCL $211 $212 $208 $208 $210 $212 $214 $215 $213 $209 $196 $193 $195 y/y % chg 9.5% 10.5% 8.4% 7.0% 8.0% 11.2% 11.4% 9.8% 5.7% 1.2% -6.9% -9.0% -6.1% # of sailings 438 438 438 433 433 430 428 427 436 436 436 436 423 Caribbean $209 $211 $208 $208 $212 $215 $218 $223 $220 $213 $198 $192 $194 y/y % chg 8.8% 10.0% 10.0% 6.6% 9.6% 13.8% 13.0% 14.0% 8.1% 3.5% -5.2% -9.1% -6.7% # of sailings 227 227 214 193 192 191 191 190 195 195 195 195 194 Bahamas $197 $196 $182 $181 $179 $177 $176 $176 $170 $164 $157 $149 $152 y/y % chg 8.5% 8.5% 2.6% 7.1% 11.4% 13.2% 9.8% 6.9% -0.7% -12.3% -20.3% -23.9% -16.4% # of sailings 67 67 80 79 80 80 80 80 81 81 81 81 81 Europe $256 $258 $255 $274 $273 $273 $282 $267 $262 $263 $229 $236 $236 y/y % chg 6.7% 7.1% 6.2% 7.6% 5.6% 10.7% 14.1% 5.5% 1.0% 2.5% -10.7% -8.3% -7.4% # of sailings 29 29 29 35 35 34 32 32 34 34 34 34 34 Asia $221 $225 $219 $203 $204 $207 $208 $204 $205 $207 $202 $205 $200 y/y % chg 14.8% 17.4% 11.2% 7.3% 3.8% 3.6% 5.8% 3.3% 3.2% -4.2% -8.3% -8.8% -8.3% # of sailings 81 81 81 95 95 95 95 95 95 95 95 95 95 Royal Caribbean Brand $196 $198 $195 $192 $192 $193 $194 $193 $190 $188 $179 $180 $182 y/y % chg 5.8% 6.8% 6.1% 6.4% 8.8% 7.9% 7.6% 6.6% 2.2% -3.5% -8.5% -9.2% -6.8% # of sailings 345 345 345 345 345 342 340 339 343 343 343 343 331 Caribbean $193 $196 $196 $193 $194 $196 $197 $199 $196 $192 $182 $180 $180 y/y % chg 4.1% 5.7% 8.4% 4.1% 8.0% 8.4% 6.4% 7.9% 2.6% -0.9% -5.7% -8.3% -8.0% # of sailings 180 180 167 153 152 151 151 150 152 152 152 152 151 Bahamas $194 $194 $180 $181 $179 $177 $176 $175 $168 $162 $154 $147 $151 y/y % chg 7.9% 7.5% 1.7% 7.5% 12.4% 13.4% 10.1% 6.7% -1.5% -13.1% -20.5% -24.4% -16.0% # of sailings 64 64 77 77 78 78 78 78 78 78 78 78 78 Asia $218 $222 $218 $195 $195 $195 $195 $191 $193 $198 $197 $206 $203 y/y % chg 18.3% 20.8% 12.9% 11.2% 5.9% -1.2% 2.9% 2.7% 2.8% -7.8% -9.5% -7.3% -6.6% # of sailings 63 63 63 72 72 72 72 72 72 72 72 72 72 Celebrity Brand $258 $259 $248 $259 $266 $273 $278 $282 $282 $273 $248 $235 $234 y/y % chg 17.8% 40.5% 12.9% 10.6% 7.7% 20.4% 21.8% 18.5% 14.3% 11.8% -3.8% -9.1% -5.6% # of sailings 93 93 93 88 88 88 88 88 93 93 93 93 92 Caribbean $278 $278 $261 $266 $282 $290 $300 $315 $308 $292 $257 $237 $245 y/y % chg 25.3% 24.6% 13.4% 12.7% 11.4% 28.8% 32.3% 29.8% 19.6% 12.3% -7.7% -14.5% -5.9% # of sailings 47 47 47 40 40 40 40 40 43 43 43 43 43 Asia $228 $232 $221 $224 $225 $236 $239 $236 $236 $230 $215 $203 $193 y/y % chg 6.0% 8.9% 6.8% 6.5% 2.6% 15.6% 14.2% 7.4% 6.9% 4.6% -5.7% -12.6% -12.7% # of sailings 18 18 18 23 23 23 23 23 23 23 23 23 23 May-19 Jun-19 Jul-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 NCLH (Norwegian) $196 $193 $190 $198 $198 $199 $199 $203 $201 $203 $199 $183 $177 y/y % chg 9.4% 7.4% 6.3% 1.2% 3.3% 3.9% 0.3% 2.0% 0.4% 2.1% 1.6% -5.1% -6.7% # of sailings 162 162 162 159 159 158 157 157 177 173 171 171 165 Caribbean $195 $193 $187 $184 $184 $187 $189 $196 $201 $202 $200 $187 $167 y/y % chg 16.9% 16.2% 15.5% 2.7% 4.7% 5.9% 4.7% 7.9% 9.4% 3.6% 2.5% -3.0% -10.6% # of sailings 65 65 53 40 40 40 40 40 47 47 47 47 47 Europe $189 $185 $186 $209 $208 $209 $207 $205 $196 $199 $196 $180 $180 y/y % chg 6.7% 3.4% -0.2% 8.3% 5.9% 7.2% 1.0% 0.0% -3.3% 0.5% 4.0% -2.6% -3.1% # of sailings 29 29 29 30 30 29 28 28 38 36 36 36 36 Asia $185 $185 $179 $189 $189 $185 $183 $185 $180 $174 $174 $173 $173 y/y % chg 20.9% 20.6% 15.3% 0.4% 1.7% -1.5% -1.5% -5.4% -8.6% -6.0% -6.2% -3.7% # of sailings 9 9 9 13 13 13 13 13 13 11 11 11 10 Source: Cruise Analytics, J.P. Morgan 12 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com A Closer Look at 1Q21 Figure 18: Global 1Q21 Itineraries Ticket Price Changes (% y/y) 53% Caribbean, 20% Asia Pacific 1Q21 Global Ticket Price % y/y 20% 15% CCL 10% RCL 5% NCLH 0% -5% -10% Dec-19Dec-19 Jan-20Ja n-20 Feb-20Feb-20 Mar-20Mar-20 Apr-20Apr-20 May-20May-20 Ju n-20Jun-20 Jul-20Jul-20 CCL 4% 6% 4% 4% 4% 5% 3% 3% RCL 16% 16% 13% 11% 4% -2% -9% NCLH 1% 1% -2% -2% -3% -5% -7% Source: Cruise Analytics, J.P. Morgan 1Q21 Analysis. For CCL, 1Q21 ticket prices were stable, with last month at up 3% y/y. For RCL, ticket prices in July decelerated significantly to down 9% y/y from down 2% last month. Tickets in the Caribbean and Bahamas saw MSD% cuts m/m, and LSD% in Asia. NCLH ticket prices decelerated to down 7% y/y, from down 5% last month, driven by the Caribbean and Bahamas. 13 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Figure 19: Caribbean 1Q21 Itineraries Ticket Price Changes (% y/y) 53% of Global Capacity 1Q21 Caribbean Ticket Price % y/y 25% 20% 15% CCL 10% RCL 5% 0% NCLH -5% -10% -15% Dec-19Dec-19 Jan-20Jan-20 Feb-20Feb-20 Mar-20Mar-20 Apr-20Apr-20 May-20May-20 Jun-20Jun-20 Jul-20Jul- 20 CCL 2% 4% 1% 2% 1% 2% -1% -1% RCL 19% 18% 14% 11% 4% -4% -11% NCLH -1% -1% -2% -4% -5% -8% -9% Source: Cruise Analytics, J.P. Morgan Figure 20: Asia 1Q21 Itineraries Ticket Price Changes (% y/y) 20% of Global Capacity 1Q21 Asia Ticket Price % y/y 10% 8% 6% 4% CCL 2% RCL 0% -2% -4% ##### ##### ##### Mar-20 ##### May-20 ##### Jul-20 CCL 4% 7% 5% 5% 4% 3% 1% 1% RCL 6% 8% 8% 8% 4% 3% -3% Source: Cruise Analytics, J.P. Morgan 14 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Figure 21: CCL 1Q21 Itineraries By Brand and Region $ PPD, % y/y change, and # of itineraries in data sample 1Q20 1Q21 May-19 Jun-19 Jul-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 CCL $188 $188 $187 $199 $199 $199 $198 $197 $197 $194 $192 y/y % chg -2.3% -1.3% -0.6% 3.7% 5.8% 4.4% 3.7% 4.4% 4.5% 2.9% 3.1% # of sailings 1068 1068 1067 1100 1100 1098 1142 1148 1152 1156 1147 Caribbean $172 $173 $171 $174 $173 $174 $175 $174 $175 $171 $169 y/y % chg 2.8% 6.1% 9.3% 1.8% 3.8% 1.4% 2.4% 1.2% 1.7% -0.8% -1.3% # of sailings 472 472 465 452 452 452 437 437 436 436 436 Mexico $154 $155 $152 $157 $157 $158 $158 $155 $153 $147 $144 y/y % chg 5.9% 6.5% 7.1% 3.9% 8.2% 4.6% 2.9% 0.8% -1.0% -5.3% -5.4% # of sailings 91 91 91 90 90 90 89 93 97 101 102 Bahamas $131 $132 $132 $134 $134 $135 $135 $131 $129 $119 $116 y/y % chg 2.0% 0.7% -1.1% 5.9% 5.7% 5.7% 5.3% 1.8% -1.4% -9.6% -12.0% # of sailings 112 112 118 118 118 118 117 117 117 117 117 Europe $282 $282 $282 $175 $175 $175 $175 $178 $177 $178 $179 y/y % chg 71.6% 71.3% 62.1% -39.9% -41.2% -41.0% -41.2% -37.3% -37.3% -36.7% -36.5% # of sailings 11 11 11 79 79 77 79 79 79 79 69 Asia $201 $201 $199 $215 $215 $214 $214 $211 $206 $203 $201 y/y % chg -2.9% -1.9% 0.5% 4.3% 7.2% 5.4% 5.2% 4.0% 2.6% 0.9% 1.2% # of sailings 233 233 233 250 250 250 250 252 252 253 253 Carnival Brand $136 $137 $137 $138 $138 $138 $139 $136 $133 $125 $124 y/y % chg 2.1% 1.5% 0.5% 3.3% 3.2% 3.2% 3.6% 0.5% -2.5% -8.5% -9.3% # of sailings 429 429 429 437 437 437 426 430 433 437 438 Caribbean $138 $139 $138 $140 $140 $140 $142 $139 $136 $129 $128 y/y % chg 1.8% 1.5% 1.0% 3.2% 3.0% 3.0% 3.9% 1.3% -1.5% -7.0% -7.4% # of sailings 244 244 238 250 250 250 240 240 239 239 239 Mexico $134 $134 $133 $127 $127 $127 $127 $127 $123 $115 $114 y/y % chg 11.8% 9.6% 6.8% 3.9% 3.4% 3.2% 3.5% -5.2% -8.7% -14.5% -14.6% # of sailings 66 66 66 63 63 63 62 66 70 74 75 Bahamas $131 $132 $132 $133 $134 $134 $134 $131 $128 $118 $115 y/y % chg 3.5% 2.1% 0.2% 5.4% 5.2% 5.2% 4.8% 1.2% -2.1% -10.4% -12.8% # of sailings 112 112 118 117 117 117 116 116 116 116 116 Princess Brand $186 $188 $187 $210 $210 $213 $215 $216 $220 $222 $219 y/y % chg -3.0% -0.2% 2.0% 17.4% 15.6% 13.1% 14.1% 16.0% 18.3% 18.5% 16.7% # of sailings 211 211 211 206 206 206 206 206 207 206 206 Caribbean $190 $195 $197 $202 $205 $211 $216 $217 $223 $225 $218 y/y % chg -2.8% 4.3% 13.7% 22.7% 12.7% 11.4% 13.9% 14.2% 17.1% 15.6% 10.7% # of sailings 70 70 70 57 57 57 57 57 57 57 57 Mexico $173 $175 $170 $168 $168 $169 $169 $173 $181 $184 $182 y/y % chg 11.4% 13.2% 11.8% 5.8% 8.0% 2.6% -1.3% 2.0% 4.7% 4.9% 6.9% # of sailings 17 17 17 19 19 19 19 19 19 19 19 Asia $171 $170 $169 $195 $195 $195 $195 $192 $188 $190 $186 y/y % chg -10.0% -7.7% -6.7% 15.0% 16.5% 12.9% 12.8% 12.5% 10.1% 11.6% 10.0% # of sailings 81 81 81 86 86 86 86 86 86 86 86 Holland America Brand $224 $221 $212 $214 $213 $211 $211 $209 $211 $211 $208 y/y % chg 4.3% 7.2% 12.9% -14.0% -5.1% -9.0% -9.1% -9.5% -5.6% -4.4% -1.5% # of sailings 146 146 145 153 153 153 151 151 151 151 151 Caribbean $217 $213 $202 $206 $204 $201 $200 $199 $201 $201 $199 y/y % chg 6.5% 11.7% 19.1% -14.4% -4.5% -10.3% -10.8% -10.3% -7.1% -5.6% -1.4% # of sailings 92 92 91 95 95 95 93 93 93 93 93 Asia $206 $206 $196 $204 $204 $204 $204 $198 $199 $196 $192 y/y % chg -2.5% 0.5% 12.0% -14.3% -0.4% -5.6% -5.7% -8.3% -3.3% -4.5% -1.8% # of sailings 25 25 25 27 27 27 27 27 27 27 27 Costa Brand $164 $164 $164 $167 $167 $167 $164 $165 $164 $163 $162 y/y % chg 3.1% 3.0% 4.2% 2.7% 3.6% 2.9% 1.4% 0.9% 0.1% -1.0% -1.4% # of sailings 216 216 216 231 231 229 285 285 285 285 275 Source: Cruise Analytics, J.P. Morgan 15 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Figure 22: RCL & NCLH 1Q21 Itineraries By Brand and Region $ PPD, % y/y change, and # of itineraries in data sample 1Q20 1Q21 May-19 Jun-19 Jul-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 RCL $191 $194 $199 $203 $205 $206 $206 $199 $190 $182 y/y % chg 9.2% 7.4% 8.5% 16.2% 15.8% 12.9% 11.0% 4.0% -2.2% -8.6% # of sailings 426 426 422 448 447 470 470 469 469 468 Caribbean $193 $197 $201 $203 $205 $208 $208 $200 $189 $179 y/y % chg 10.2% 9.7% 11.7% 18.6% 17.9% 14.0% 11.0% 3.6% -4.2% -11.0% # of sailings 261 261 255 260 259 266 266 266 266 265 Bahamas $158 $161 $169 $176 $176 $178 $178 $168 $146 $140 y/y % chg 7.2% 5.6% 3.3% 25.4% 20.0% 18.5% 17.0% 6.1% -9.4% -17.3% # of sailings 74 74 78 79 79 80 80 80 80 80 Asia $193 $193 $202 $202 $202 $202 $204 $200 $200 $196 y/y % chg 9.8% 3.7% 4.0% 5.7% 7.8% 7.8% 7.5% 3.5% 3.3% -2.8% # of sailings 82 82 80 101 101 115 115 114 114 114 Royal Caribbean Brand $171 $173 $178 $181 $181 $183 $183 $179 $172 $165 y/y % chg 9.4% 7.4% 10.2% 13.3% 13.7% 11.6% 10.1% 5.0% -0.5% -7.5% # of sailings 325 325 321 341 340 357 357 356 356 355 Caribbean $171 $174 $179 $182 $182 $183 $183 $179 $171 $160 y/y % chg 7.4% 6.6% 11.5% 15.4% 15.4% 11.7% 9.5% 4.3% -2.0% -10.3% # of sailings 194 194 188 195 194 196 196 196 196 195 Bahamas $157 $159 $168 $175 $175 $177 $177 $167 $144 $138 y/y % chg 8.0% 6.2% 4.1% 27.0% 21.3% 19.7% 18.0% 6.6% -9.8% -18.1% # of sailings 68 68 72 74 74 75 75 75 75 75 Asia $181 $181 $186 $184 $183 $186 $188 $187 $191 $191 y/y % chg 19.8% 13.9% 11.9% 0.4% 4.8% 6.4% 5.7% 3.6% 5.5% 2.2% # of sailings 61 61 59 71 71 85 85 84 84 84 Celebrity Brand $254 $257 $261 $264 $271 $270 $270 $254 $238 $229 y/y % chg 8.0% 7.0% 4.5% 20.4% 17.6% 13.1% 10.4% 0.1% -7.6% -12.3% # of sailings 101 101 101 107 107 113 113 113 113 113 Caribbean $265 $271 $271 $273 $283 $283 $285 $266 $243 $233 y/y % chg 12.5% 13.4% 9.0% 25.3% 22.5% 16.0% 12.0% 0.2% -10.4% -13.8% # of sailings 67 67 67 65 65 70 70 70 70 70 Asia $221 $221 $235 $234 $237 $237 $237 $227 $218 $207 y/y % chg 1.2% -4.7% -4.2% 12.9% 9.8% 9.8% 9.8% 2.4% -1.5% -11.7% # of sailings 21 21 21 30 30 30 30 30 30 30 May-19 Jun-19 Jul-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 NCLH (Norwegian) $194 $194 $192 $194 $194 $191 $191 $189 $184 $179 y/y % chg 14.3% 12.4% 10.8% 0.9% 0.7% -1.6% -2.0% -2.7% -5.0% -7.1% # of sailings 121 121 119 144 144 173 173 173 173 172 Caribbean $180 $179 $178 $172 $172 $172 $173 $171 $166 $163 y/y % chg 13.1% 12.3% 10.0% -1.0% -1.3% -1.5% -4.5% -5.2% -7.7% -8.6% # of sailings 78 78 76 77 77 78 78 78 78 77 Bahamas $228 $228 $215 $179 $179 $163 $164 $163 $159 $147 y/y % chg 25.3% 21.8% 21.2% -23.7% -23.8% -30.6% -28.3% -28.8% -30.4% -31.5% # of sailings 7 7 7 19 19 46 46 46 46 46 Source: Cruise Analytics, J.P. Morgan 16 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com A Closer Look at 2Q21 Figure 23: Global 2Q21 Itineraries Ticket Price Changes (% y/y) 35% Caribbean, 26% Europe, 14% Asia Pacific 2Q21 Global % y/y 5% 4% 3% CCL RCL 2% NCLH 1% 0% -1% Mar-20Mar-20 Apr-20Apr-20 May-20May-20 Ju n-20Jun-20 Ju l-20Jul-20 CCL 0% 2% 2% 1% 1% RCL 4% 3% 1% 0% NCLH 1% 2% 1% 1% Source: Cruise Analytics, J.P. Morgan 2Q21 Analysis. CCL ticket prices for 2Q21 sailings were stable in July versus June at up 1% y/y. The Caribbean decelerated slightly to down 3% y/y, which was offset by strength in Europe. For RCL, prices were also stable, with only margin weakness in the Bahamas (down 2% m/m); all other regions were unchanged with June pricing. NCLH prices were unchanged with last month, at +1% y/y. 17 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Figure 24: Caribbean 2Q21 Itineraries Ticket Price Changes (% y/y) 35% of Global Capacity 2Q21 Caribbean % y/y 15% 10% CCL 5% RCL 0% NCLH -5% -10% Mar-20Mar-2 0 Apr-20Apr-20 May-20May-20 Ju n-20Jun-20 Jul-20Jul-20 CCL 1% 0% 0% -2% -3% RCL 13% 11% 8% 7% NCLH -9% -8% -8% -7% Source: Cruise Analytics, J.P. Morgan Figure 25: Europe 2Q21 Itineraries Ticket Price Changes (% y/y) 26% of Global Capacity 2Q21 Europe % y/y 20% 15% CCL 10% RCL 5% NCLH 0% -5% -10% Mar-20Mar-20 Apr-20Apr-20 May-20May-20 Jun-20Jun-20 Jul-20Jul-20 CCL -7% 14% 14% 13% 16% RCL 9% 9% 7% 6% NCLH 0% 0% -4% -4% Source: Cruise Analytics, J.P. Morgan 18 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Figure 26: Asia 2Q21 Itineraries Ticket Price Changes (% y/y) 14% of Global Capacity 2Q21 Asia % y/y 0% -1% -2% CCL -3% RCL -4% -5% -6% -7% Mar-20Mar-20 Ap r-20Apr-20 May-20May-20 Jun-20Ju n-20 Ju l- 20Jul-20 CCL -3% -2% -2% -2% -2% RCL -3% -3% -3% -3% Source: Cruise Analytics, J.P. Morgan 19 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Figure 27: CCL 2Q21 Itineraries By Brand and Region $ PPD, % y/y change, and # of itineraries in data sample 2Q20 2Q21 May-19 Jun-19 Jul-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 CCL $189 $189 $189 $192 $192 $192 $190 $191 y/y % chg -1.9% -1.7% 2.2% 0.1% 1.5% 1.5% 0.6% 1.1% # of sailings 1038 1037 1037 960 960 960 960 961 Caribbean $159 $159 $159 $159 $160 $159 $156 $154 y/y % chg -2.7% -2.0% 3.0% 0.6% 0.3% 0.1% -1.9% -2.9% # of sailings 305 304 293 284 284 284 284 284 Mexico $142 $142 $146 $148 $148 $148 $144 $143 y/y % chg -2.6% -2.8% 6.5% 5.0% 4.6% 4.6% 2.0% -1.5% # of sailings 76 76 76 83 83 83 83 87 Bahamas $147 $148 $149 $145 $145 $145 $140 $138 y/y % chg 5.1% 5.0% 2.4% 0.0% -0.6% -1.3% -5.0% -7.0% # of sailings 115 115 126 128 128 128 127 127 Europe $212 $212 $212 $243 $243 $241 $240 $246 y/y % chg -6.3% -6.7% 8.6% -6.5% 14.4% 13.8% 12.9% 15.9% # of sailings 226 226 226 112 112 112 112 107 Asia $210 $210 $211 $207 $207 $207 $206 $207 y/y % chg -6.2% -6.0% -5.0% -3.1% -1.7% -1.5% -1.8% -1.8% # of sailings 112 112 112 138 138 138 138 138 Carnival Brand $146 $146 $146 $145 $145 $145 $140 $139 y/y % chg 2.7% 2.7% 1.1% -0.1% -0.4% -0.8% -4.0% -5.0% # of sailings 429 429 429 443 443 443 443 447 Caribbean $145 $146 $146 $147 $147 $147 $142 $141 y/y % chg 2.1% 1.9% 0.7% 1.2% 1.2% 0.8% -2.2% -3.2% # of sailings 238 238 227 227 227 227 227 227 Mexico $131 $131 $131 $133 $133 $133 $124 $127 y/y % chg 3.5% 3.5% 1.8% 6.2% 1.4% 1.4% -5.4% -3.4% # of sailings 63 63 63 68 68 68 68 72 Bahamas $147 $148 $149 $145 $145 $145 $140 $138 y/y % chg 5.1% 5.0% 2.4% 0.0% -0.6% -1.3% -5.0% -7.0% # of sailings 115 115 126 128 128 128 127 127 Princess Brand $207 $207 $209 $208 $209 $210 $210 $213 y/y % chg -0.9% -0.2% 2.6% 2.5% 1.0% 1.5% 1.5% 2.1% # of sailings 206 206 206 202 202 202 202 204 Caribbean $188 $189 $192 $199 $203 $203 $204 $202 y/y % chg -4.3% -1.7% 11.8% 5.3% 7.5% 8.0% 7.8% 5.4% # of sailings 31 31 31 23 23 23 23 23 Europe $271 $271 $271 $272 $272 $272 $272 $272 y/y % chg 5.4% 5.2% 4.5% 4.1% 0.4% 0.4% 0.4% 0.4% # of sailings 32 32 32 23 23 23 23 23 Asia $194 $194 $197 $187 $187 $187 $187 $189 y/y % chg -9.6% -9.4% -7.4% -2.6% -3.3% -3.3% -3.3% -4.2% # of sailings 58 58 58 69 69 69 69 69 Holland America Brand $216 $216 $211 $245 $246 $245 $244 $244 y/y % chg -2.1% -1.9% 3.8% 13.0% 13.3% 13.1% 13.0% 15.4% # of sailings 145 144 144 135 135 135 135 135 Caribbean $217 $217 $202 $215 $216 $215 $215 $214 y/y % chg 0.5% 1.8% 15.7% -1.7% -0.6% -0.9% -0.6% 6.1% # of sailings 25 24 24 22 22 22 22 22 Europe $240 $240 $240 $347 $347 $341 $338 $338 y/y % chg -12.7% -12.7% -0.3% 44.7% 44.7% 42.4% 41.0% 41.0% # of sailings 34 34 34 28 28 28 28 28 Asia $211 $209 $206 $199 $199 $203 $203 $203 y/y % chg 6.6% 6.9% 13.5% -5.5% -5.5% -3.6% -2.6% -1.7% # of sailings 16 16 16 10 10 10 10 10 Costa Brand $151 $151 $151 $143 $143 $143 $143 $142 y/y % chg 9.2% 8.8% 0.2% 15.5% -4.8% -5.0% -5.7% -6.3% # of sailings 199 199 199 126 126 126 126 121 Europe $167 $167 $167 $167 $167 $167 $164 $168 y/y % chg 10.5% 10.2% 2.9% -0.4% -0.4% -1.8% 0.6% # of sailings 147 147 147 51 51 51 51 46 Asia $128 $128 $128 $140 $140 $140 $139 $137 y/y % chg -4.7% -5.0% -11.0% 7.5% 9.0% 9.0% 8.7% 6.8% # of sailings 12 12 12 28 28 28 28 28 Source: Cruise Analytics, J.P. Morgan 20 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Figure 28: RCL & NCLH 2Q21 Itineraries By Brand and Region $ PPD, % y/y change, and # of itineraries in data sample 2Q20 2Q21 May-19 Jun-19 Jul-19 Ap r-19 May-19 Jun-19 Jul-19 RCL $239 $241 $241 $248 $247 $242 $240 y/y % chg 13.9% 12.4% 10.1% 4.4% 3.4% 0.6% -0.4% # of sailings 371 371 370 339 339 339 339 Caribbean $217 $221 $222 $242 $241 $239 $238 y/y % chg 17.5% 17.4% 15.0% 12.9% 11.5% 8.1% 7.1% # of sailings 131 131 129 104 104 104 104 Bahamas $235 $224 $221 $204 $203 $185 $181 y/y % chg 48.0% 37.4% 25.8% -12.5% -13.8% -17.2% -17.9% # of sailings 68 68 70 40 40 40 40 Europe $282 $284 $284 $307 $307 $303 $302 y/y % chg 7.6% 6.4% 1.5% 9.1% 8.7% 6.9% 6.2% # of sailings 81 81 81 75 75 75 75 Asia $195 $195 $195 $189 $190 $190 $190 y/y % chg 2.4% 1.1% -0.2% -2.6% -2.9% -2.6% -2.6% # of sailings 19 19 19 26 26 26 26 Royal Caribbean Brand $227 $227 $228 $229 $229 $223 $221 y/y % chg 22.4% 19.5% 13.5% 1.4% 0.9% -1.6% -2.8% # of sailings 278 278 277 235 235 235 235 Caribbean $214 $219 $220 $236 $236 $234 $234 y/y % chg 21.4% 21.4% 17.7% 10.7% 10.0% 6.8% 6.5% # of sailings 108 108 106 79 79 79 79 Bahamas $236 $224 $221 $205 $203 $185 $182 y/y % chg 48.4% 38.5% 26.9% -12.5% -13.8% -17.4% -18.0% # of sailings 66 66 68 38 38 38 38 Europe $252 $253 $253 $273 $273 $272 $266 y/y % chg 20.1% 16.0% 1.2% 8.3% 8.1% 7.2% 4.9% # of sailings 52 52 52 39 39 39 39 Asia $184 $184 $184 $179 $179 $182 $182 y/y % chg 4.2% 4.2% -0.7% -3.5% -2.9% -1.4% -1.4% # of sailings 14 14 14 22 22 22 22 Celebrity Brand $275 $279 $280 $289 $287 $282 $281 y/y % chg -1.6% -0.7% 1.0% 6.8% 4.6% 1.0% 0.6% # of sailings 93 93 93 104 104 104 104 Caribbean $228 $234 $238 $266 $263 $261 $256 y/y % chg -5.4% -5.9% -4.6% 20.1% 15.4% 11.5% 7.6% # of sailings 23 23 23 26 25 25 25 Europe $335 $338 $338 $340 $340 $335 $337 y/y % chg 0.9% 1.8% 1.8% 2.2% 1.5% -0.9% -0.3% # of sailings 29 29 29 36 36 36 36 May-19 Jun-19 Jul-19 Ap r-19 May-19 Jun-19 Jul-19 NCLH (Norwegian) $232 $232 $232 $236 $237 $234 $234 y/y % chg 4.8% 4.3% 2.9% 1.5% 1.9% 0.9% 1.0% # of sailings 124 123 123 163 163 163 163 Caribbean $205 $205 $203 $188 $189 $189 $189 y/y % chg 14.0% 13.1% 10.3% -8.6% -7.9% -7.6% -7.3% # of sailings 20 20 20 23 23 23 23 Alaska $339 $338 $338 $284 $284 $284 $283 y/y % chg 8.5% 8.0% 18.1% -16.5% -16.4% -16.0% -16.2% # of sailings 8 8 8 36 36 36 36 Europe $241 $241 $241 $240 $240 $230 $230 y/y % chg 11.4% 11.2% 10.2% -0.4% -0.5% -4.3% -4.3% # of sailings 44 43 43 48 48 48 48 Source: Cruise Analytics, J.P. Morgan 21 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Booking Trends Company Commentary CCL As of 2Q20 Preannouncement (6/18) As of 2Q-end, cumulative advanced bookings for 2021 were within historical ranges (similar to peers, we would estimate that range to be 15-25%) at prices that are down in the low- to mid-single digits (generally in line with our pricing data), and this includes the negative yield impact of FCCs/on a comparable basis. For 2021, bookings over the past six weeks have been running meaningfully lower y/y but have improved over the previous six weeks similar to commentary from the other two operators. As of late March, CCL's 1H21 cumulative book was slightly lower y/y, and we would expect the revised data points (and logic) to imply the book has eroded further within the "historical range." Over the last six weeks, 2/3 of new bookings were cash bookings, and 1/3 were from credits/rebookings. RCL As of 5/20 (1Q Earnings) RCL sees booking volumes for the remainder of 2020 as meaningfully lower than the same time last year at prices that are down low-single digits. 2021 bookings are within historical ranges for this (early) point in the booking cycle, at prices up midsingle digits y/y. Roughly 20% of FCC have rebooked future cruises, but this only accounts for a small % of forward net bookings, according to the company. NCLH As of 5/14 (1Q Earnings) In line with recent commentary, forward bookings still sit within historical ranges, with NCLH highlighting demand beginning in the 4Q20 and accelerating through 2021. A "vast majority" of bookings for 2021 are not from future cruise credits. NCLH As of 1Q20 Preannouncement (4/27) For NCLH as of April 17, advanced bookings for the remainder of the year were meaningfully lower than in the prior year, with pricing that was down low-single digits, and its booked position for next year flat y/y at pricing down mid-single digits. These data points are not out of line with our recent pricing publications and the overall market assessment that cruise pricing is holding up better than expected. 22 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Summary of Company Drivers, Estimates, and Valuation Figure 29: Summary of Estimates and Company Valuations $ = Actual (USD), FXN = constant currency Price Upside / as of Market YE20 Downside EV/EBITDA EV/EBITDA P/E Net Leverage Rating Ticker 7/7/2020 Cap PT to PT @ PT ('22) 2021E 2022E 2021E 2022E 2021E 2022E N CCL $14.57 $10.9 $20 37% 9.5x 15.6x 7.8x -10.9x 21.9x 9.5x 4.9x OW RCL $47.55 $10.3 $72 52% 11.0x 13.3x 8.8x -21.8x 16.7x 8.1x 5.4x OW NCLH $15.27 $3.5 $24 59% 10.0x 17.4x 8.3x -14.2x 11.6x 11.4x 5.0x Mean 15.4x 8.3x JPME EBITDA as % of 2019 EBITDA Capacity (% '19) Net Yield NY as % of 2019 2019 2020E 2021E 2022E 2021E 2022E 2021E 2022E 2021E 2022E 2021E 2022E CCL 5,437 -1,544 1,930 4,095 35% 75% 77% 91% $135 $156 76% 87% RCL 3,329 -1,037 1,803 2,968 54% 89% 88% 102% $171 $192 82% 92% NCLH 1,948 -709 761 1,601 39% 82% 87% 111% $198 $234 77% 91% JPME EPS as % of 2019 EPS Occupancy OCF ROIC 2019 2020E 2021E 2022E 2021E 2022E 2021E 2022E 2021E 2022E 2021E 2022E CCL 4.40 -4.60 -1.33 0.67 N/A 15% 93% 100% 707 2,866 -1.1% 4.1% RCL 9.54 -15.00 -2.18 2.84 N/A 30% 97% 100% 881 2,164 1.8% 6.4% NCLH 5.10 -5.85 -1.07 1.31 N/A 26% 93% 100% 338 1,253 -0.5% 5.7% Source: J.P. Morgan, Bloomberg 23 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Back-Testing Pricing Data Historically our data has been reasonably good at directionally tracking the three operators' FX-neutral gross ticket prices (especially in 2019, see below). Figure 30: Historical data-driven pricing growth predictions versus reported actuals Price calculation is 50:50 blend of rolling NTM data and cumulative quarterly data 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% 1Q 14 14 2Q 3Q 14 4Q 14 1Q 15 15 2Q 3Q 15 15 4Q 1Q 16 2Q 16 18 18 18 18 19 19 19 19 16 3Q 16 4Q 17 1Q 2Q 17 3Q 17 4Q 17 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q CCL Predicted Ticket Price CCL Reported Gross Ticket Price (FXN) 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% 14 14 3Q 14 4Q 14 1Q 2Q 15 1Q 2Q 15 3Q 15 15 4Q 16 1Q 2Q 16 3Q 16 16 4Q 1Q 17 2Q 17 17 3Q 17 4Q 18 1Q 2Q 18 3Q 18 4Q 18 1Q 19 2Q 19 19 3Q 4Q 19 RCL Predicted Ticket Pri ce RCL Reported Gross Ticket Price (FXN) 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% 1Q 15 15 2Q 1Q 14 2Q 14 3Q 14 4Q 14 3Q 15 4Q 15 1Q 16 2Q 16 16 3Q 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17 18 1Q 2Q 18 18 3Q 4Q 18 1Q 19 2Q 19 19 3Q 4Q 19 Norwegian Predicted Ti cket Price NCLH Reported Gross Ticket Price (FXN) Source: Cruise Analytics, JPM. 24 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Monthly Cruise Pricing Methodology About the data. Our survey data, sourced from Cruise Analytics (an OTA and data provider), is conducted in $USD and reflects pricing for internet-marketed tickets that can be purchased globally, but skews more to U.S.-based customers. Pricing corresponds to gross ticket price that cruise passengers are likely to pay before incentives. In our methodology, we find Price Per Person Per Day (PPPD) for all future itineraries, which is then weighted by capacity and days sailed, and finally aggregated for each forward quarter to derive a forecast for year-over-year pricing growth. Average pricing for any given quarterly estimate is equal to the average of 12 monthly data points, which we begin to capture one year prior to each quarter, and therefore variations in actual bookings cadence throughout the year will cause tracking error. Given that ~50% of global cruise passengers are sourced outside of N.A. and thus likely not captured by this survey, differences in internationally marketed ticket prices will cause further differences between our survey's implied pricing and the actual yields reported for each company. We also note that average pricing does not adjust for mix/deployment differences y/y (though we try and call these out when large), changes in company revenue management strategies (for example withholding higher priced cabins or entire itineraries until later vs. the prior season.), or changes in bundling/promotional activity (the increase of which would boost gross ticket pricing, but not necessarily net yield to the same extent). Given these sources of tracking error, we tend to focus more on sequential changes in forward pricing rather than y/y, and this survey is only one indication of relative pricing strength. Brand Coverage. CCL surveyed brands include Carnival, Costa, Cunard, Holland America and Princess, which collectively account for ~75% of aggregate capacity. RCL surveyed brands include Royal Caribbean and Celebrity, which account for ~76% of (non-consolidated) aggregate capacity. NCLH's survey includes the Norwegian brand, which accounts for ~85-90% of aggregate capacity. Out of the aggregate capacity, we note our survey covers USD denominated purchases. We note that all cruises with capacity less than 100 berths are removed from the data set for better consistency. Geographic Coverage. Geographies covered include Alaska, Asia, Atlantic, Bahamas, Canada & NE, Caribbean, Europe, Hawaii, Mexico, Panama, and Others, across CCL, RCL and NCLH. 25 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com Analyst Certification: The research analyst(s) denoted by an "AC" on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an "AC" on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect the research analyst's personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. 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For important disclosures for these companies, please call 1-800-477- 0406 or e-mail research.disclosure.inquiries@jpmorgan.com. Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia and ex-India) and U.K. small- and mid-cap equity research, each stock's expected total return is compared to the expected total return of a benchmark country market index, not to those analysts' coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst's coverage universe can be found on J.P. Morgan's research website, www.jpmorganmarkets.com. Coverage Universe: Montour, Brandt A: Carnival Corporation (CCL), Hilton Grand Vacations (HGV), Marriott Vacations Worldwide (VAC), Norwegian Cruise Line (NCLH), Park Hotels & Resorts (PK), Royal Caribbean Cruises (RCL) J.P. Morgan Equity Research Ratings Distribution, as of July 04, 2020 Overweight Neutral Underweight (buy) (hold) (sell) J.P. Morgan Global Equity Research Coverage 46% 39% 15% IB clients* 53% 49% 38% JPMS Equity Research Coverage 43% 42% 15% IB clients* 75% 70% 58% *Percentage of subject companies within each of the "buy," "hold" and "sell" categories for which J.P. Morgan has provided investment banking services within the previous 12 months. Please note that the percentages might not add to 100% because of rounding. For purposes only of FINRA ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above. This information is current as of the end of the most recent calendar quarter. Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com. For material information about the proprietary models used, please see the Summary of Financials in company-specific research reports and the Company Tearsheets, which are available to download on the company pages of our client website, http://www.jpmorganmarkets.com. This report also sets out within it the material underlying assumptions used. Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Other Disclosures 26 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com J.P. Morgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries and affiliates worldwide. All research reports made available to clients are simultaneously available on our client website, J.P. Morgan Markets. Not all research content is redistributed, e-mailed or made available to third-party aggregators. For all research reports available on a particular stock, please contact your sales representative. Any data discrepancies in this report could be the result of different calculations and/or adjustments. 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Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised July 04, 2020. Copyright 2020 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P 28 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 08 July 2020 brandt.a.montour@jpmorgan.com 29 Completed 07 Jul 2020 04:52 PM EDT Disseminated 08 Jul 2020 12:15 AM EDT This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} North America Equity Research 10 July 2020 Carnival Corporation Neutral CCL, CCL US Takeaways Post 2Q20 are Net Positive, but CDC Price (10 Jul 20): $16.16 Overhang is Fully Intact; PT to $18 (-$2) Price Target (Dec-20): $18.00 Prior (Dec-20): $20.00 Following CCL's full 2Q20 earnings release and conference call, our Gaming & Lodging takeaways were net positive on the margin. Cumulative 2021 bookings remain Brandt Montour, CFA AC within historical ranges, with pricing continuing to hold up. While it's still (1-212) 622-1111 early in the bookings curve for next year, our sense is that many investors brandt.a.montour@jpmorgan.com were expecting to see more erosion show up in the cumulative forward book, Bloomberg JPMA MONTOUR given so many weeks/months of soft bookings. Cash burn outlook was Joseph Greff unchanged, but management included several factors that should push this (1-212) 622-0548 lower through year-end. CCL announced more tonnage leaving the fleet (now joseph.greff@jpmorgan.com 9% of berths total), several more ships than was implied in an update a few Omer N Sander (1-212) 622-2684 weeks ago. Lastly, CCL's Costa brand in Italy doesn't seem far away from omer.n.sander@jpmorgan.com announcing a resumption in operations, following CCL's German brand AIDA Daniel Politzer, CFA earlier this week (for August), which also has potentially positive implications (1-212) 622-8170 for cash flow, bookings and sentiment, in our view. dan.politzer@jpmchase.com J.P. Morgan Securities LLC On the negative side, CCL's commentary regarding the CDC confirmed investor fears that an agreement for a lift in the no-sail order is far from Key Changes (FYE Nov) imminent ("we have not actually gotten to the point of serious resumption of Prev Cur cruise discussions, but of course that's coming.") Adj. EPS - 20E ($) (4.60) (9.81) Adj. EPS - 21E ($) (1.33) (3.46) Our estimates bleed lower as we continue to push out our capacity and Quarterly Forecasts (FYE Nov) occupancy recovery assumptions, offset partially by slightly less pricing erosion in 2021. These adjustments, along with higher net debt, from the 2Q's Adj. EPS ($) 2019A 2020E 2021E greater-than-expected cash burn (initial lay-up and repatriation costs), lowers Q1 0.49 0.23A our 2020 year-end PT to $18 from $20. Q2 0.66 (6.07)A Q3 2.63 (2.00) Bookings trends. Since CCL's preannouncement 6/18, it is now seeing a Q4 0.62 (1.98) FY 4.40 (9.81) (3.46) higher portion of current bookings coming from FCC's (future cruise credits) - something close to ~50% in the very near term, 40% for the first Style Exposure three weeks of June, and ~1/3 for the six week period ending May 31st. We Quant Current Hist %Rank (1=Top) thought management sounded upbeat regarding the strength its seeing in Factors %Rank 6M 1Y 3Y 5Y bookings from repeat cruisers and what it thinks it will see in pent-up Value 100 32 29 57 32 demand from its ~40m consumer database looking to potentially sail next Growth 80 95 89 21 19 year. As of June 21st, ~50% of canceled trips requested refunds (unchanged Momentum 92 61 76 21 37 since late May) and its cumulative advanced bookings for 2021 sailings is Quality 89 19 13 35 53 within historical ranges at prices down low to mid-single digits, including Low Vol 85 19 14 12 21 negative yield impact of FCC's and onboard credits applied (meaning ESGQ 75 25 85 89 91 implied net yields would be better if no FCC's were issued). While the update on CCL's cumulative advanced book was technically unchanged, the fact that it hasn't further eroded (from ongoing weak bookings) is undoubtedly positive. Sources for: Style Exposure J.P. Morgan Quantitative and Derivatives Strategy; all other tables are company data and J.P. Morgan estimates. See page 13 for analyst certification and important disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com Price Performance Summary Investment Thesis and Valuation Investment Thesis CCL's growth metrics were sluggish heading into the crisis, as older capacity and regional footprints were more impacted by elevated capacity growth in Alaska and Europe, respectively. During COVID-19, CCL likely sustained the most direct brand damage (Princess, Holland America). Looking forward, we expect CCL to track the broader industry, albeit continue to underperform peers on account of its sheer size and lack of unique growth drivers becoming a larger competitive YTD 1m 3m 12m disadvantage post-COVID-19 than pre-COVID-19. Abs -68.2% -21.5% 30.1% -64.5% Rel -55.6% -21.0% 20.3% -58.0% Valuation Company Data Our Dec 2020 price target moves to $18, from $20, and is based on 10x 2022E EV/EBITDA, discounted back 1 year at Shares O/S (mn) 684 52-week range ($) 51.94-7.80 10% and minus 2022 year-end net debt. This implies CCL Market cap ($ mn) 11,053.44 can trade at an EV/berth of $110k. CCL's historical forward Exchange rate 1.00 EV/EBITDA range is 6.3x to 26.3x, with a 23-year average of Free float(%) 78.9% 3M - Avg daily vol (mn) 57.27 11.9x, though it traded just over 6.0x in 1Q09, and traded at 3M - Avg daily val ($ mn) 907.0 7.0x late 2019; our valuation assumption implies that investors Volatility (90 Day) 181 are willing to ascribe an above-trough multiple on well- Index MSCI Europe BBG BUY|HOLD|SELL 4|13|2 understood depressed earnings. Key Metrics (FYE Nov) Performance Drivers $ in millions FY19A FY20E FY21E FY22E Financial Estimates Revenue 15,643 5,962 8,630 13,486 Adj. EBITDA 5,437 (4,386) 762 3,733 Adj. EBIT 3,277 (6,664) (1,518) 1,360 Adj. net income 3,042 (7,162) (2,623) 188 Adj. EPS 4.40 (9.81) (3.46) 0.20 BBG EPS 4.27 (3.26) (0.29) 1.44 Cashflow from operations 5,475 (4,792) 268 3,040 FCFF (1,643) 5,598 (2,482) 290 Margins and Growth Revenue growth 1.7% (61.9%) 44.8% 56.3% Gross margin - - - - EBITDA margin 34.8% (73.6%) 8.8% 27.7% EBIT margin 20.9% (111.8%) (17.6%) 10.1% Adj. EPS growth 3.2% (323.1%) (64.7%) (105.7%) Ratios Adj. tax rate 2.3% (0.1%) (0.1%) 0.1% Interest cover 29.8 NM 0.7 3.2 Net debt/Equity 0.4 1.1 1.4 1.4 Net debt/EBITDA 2.0 -4.3 27.6 5.6 ROCE 8.9% (16.7%) (3.7%) 3.4% ROE 12.2% (33.2%) (15.9%) 1.2% Valuation FCFF yield (14.7%) 47.5% (20.3%) 1.9% Dividend yield 12.1% 3.1% 0.0% 0.0% EV/Revenue 1.5 5.2 3.8 2.4 EV/EBITDA 4.2 NM 43.5 8.8 Adj. P/E 3.7 NM NM 82.2 Sources for: Performance Drivers Bloomberg, J.P. Morgan Quantitative and Derivatives Strategy; all other tables are company data and J.P. Morgan estimates. 2 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com Liquidity and cash burn. CCL reiterated its expectations for $650m cash burn per month in 2H20, though we expect this moves lower throughout the 2H and into 2021. It breaks down as follows: $250m op/admin, $85m interest, $115 maintenance and new ship payments, net of financing, and $200m of working capital, ex-deposits (this is mostly 2Q deposit refunds coming out of A/P). We see total liquidity as of May 31st, pro forma for June debt raises and less next-12 month's debt maturities, at ~$7.8b, or ~12 months of liquidity runway. While this is our base case for cash burn in the 2H, it would likely move lower if the sailing pause extended into next year given 1) 4Q burn should be lower than 3Q burn, as more ships will be in a colder lay-up, 2) carrying costs go down as ships leave the fleet, and 3) the $200m monthly outflow from working capital/accounts payable reversed itself in early 3Q and so the monthly burn from this line should be much lower when averaging past the next six months. We model no customer deposit burn in 2H20. Capacity and occupancy ramp. Recall CCL's German AIDA brand is expected to begin sailing in August with just three ships to start (full write up here), and thinks its Costa brand in Italy isn't too far behind. CCL has a relative advantage over peers in that its portfolio of national brands (~40% of company-wide berths) largely source customers locally, which makes drive-to access easier. Presumably regarding its pending launches in Europe, CCL indicated it will probably start occupancy less than 50%, as it works through new procedures and protocols, and then ramp up above that level "hopefully in a relatively short period of time." It sees ship-level cash flow break-even at 50% occupancy for its older ships, and 30% for its newest ships. Reducing capacity. Total ships to exit the fleet moves up to 13, representing 9% of current capacity; this is up from the 6 announced a few weeks ago, no color on which ships/brands was given. On the call, management indicated only a few will be scrapped, and the majority of the others are going to buyers with a "variety of purposes." On the new ship front, 4 of the 9 ships originally on order for this year and next, have been delayed into 2022 and beyond. We now model 3 ship deliveries in 2020, 2 in 2021, and 3 in 2022. CCL doesn't see the company reaching prior peak capacity (2Q20) until 2022 at the earliest. Our Dec 2020 price target moves to $18, from $20, and is based on 10x 2022E EV/EBITDA, discounted back 1 year at 10% and minus 2022 year-end net debt. This implies CCL can trade at an EV/berth of $110k. CCL's historical forward EV/EBITDA range is 6.3x to 26.3x, with a 23-year average of 11.9x, though it traded just over 6.0x in 1Q09, and traded at 7.0x late 2019; our valuation assumption implies that investors are willing to ascribe an above-trough multiple on well-understood depressed earnings. Read on. 3 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com Figure 1: CCL Results Summary, 2Q20 $mm's, except per share data CCL Actuals Change 2Q20 2Q19 $ % / % Pts. Revenues Passenger Ticket 446 3,257 (2,811) -86.3% Onboard & Other 270 1,510 (1,240) -82.1% Gross Cruise Revenues 716 4,767 (4,051) -85.0% Other (Tour) 24 71 (47) -66.2% Total Revenues 740 4,838 (4,098) -84.7% Less: Commissions, Transportation & Other 297 613 (316) -51.5% Less: Onboard & Other 114 485 (371) -76.5% Net Cruise Revenues 305 3,669 (3,364) -91.7% Expenses Payroll & Related 705 566 139 24.6% Food 108 269 (161) -59.9% Fuel 201 423 (222) -52.5% Other Ship Operating 471 742 (271) -36.5% Selling & Administrative (Cruise) 492 621 (129) -20.8% Net Cruise Costs 3,930 2,621 1,309 49.9% EBITDA (3,601) 1,058 (4,659) -440.4% Depreciation & Amortization 577 542 35 6.5% Operating Income (EBIT) (4,178) 516 (4,694) -909.7% Margin NA 10.7% Interest Expense, Net (176) (49) (127) Other Income (Expense), Net (31) (7) (24) NM Pre Tax Income (4,385) 459 (4,844) Income Tax Benefit (Expense), Net 11 (8) 19 NM Tax Rate 0.3% 1.7% -1.5% Net Income (4,374) 451 (4,825) Reported Diluted Earnings per Share (6.07) 0.65 (6.7) yoy % change -16.6% Nonrecurring Items (per Share) 0.00 0.01 (0.0) NM Adjusted EPS (6.07) 0.66 (6.73) -1017.7% Average Diluted Shares Count 721 693 28 4.0% Drivers: Net Yield=Net Rev. per APCD ($) NA 169.51 Adj. Net Yield YoY % ($) NA -2.6% Adj. Net Yield YoY % (Constant CCY) NA 0.5% NCC (Excl. Fuel) per APCD ($) NA 101.22 Adj. NCC (Ex. Fuel) YoY % ($) NA -3.5% Adj. NCC (Ex. Fuel) YoY % (Constant CCY) NA -0.9% FX Impact to Net Revenues (3.1) (117.0) 114.0 FX Impact to Net Cruise Costs (7.9) (59.0) 51.1 Fuel price ($ per metric ton), net of hedges 418.0 507.0 (89.0) -17.6% Source: Bloomberg, company reports, J.P. Morgan 4 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com Liquidity and Cash Burn CCL reiterated its expectations for $650m cash burn per month in 2H20, though we expect this moves lower throughout the 2H and into 2021. It breaks down as follows: $250m op/admin, $85m interest, $115 maintenance and new ship payments, net of financing, and $200m of working capital, ex-deposits (this is mostly 2Q deposit refunds coming out of A/P). We see total liquidity as of May 31st, pro forma for June debt raises and less next-12 months debt maturities, at ~$7.8b, or ~12 months of liquidity runway. While this is our base case for cash burn in the 2H, it would likely move lower if the sailing pause extended into next year given 1) 4Q burn should be lower than 3Q burn, as more ships will be in a colder lay-up, 2) carrying costs go down as ships leave the fleet, and 3) the $200m monthly outflow from working capital/accounts payable reversed itself in early 3Q and so the monthly burn from this line should be much lower when averaging past the next six months. We model no customer deposit burn in 2H20. Figure 2: Liquidity and Cash Burn Based on company commentary Monthly Burn Fully Operational April Paused Operating/Admin Cash Burn 261 250 Interest expense 70 85 Maintenance Capex 111 50 Process Payments 56 65 Working capital 200 Cash Burn, monthly 834 650 Liquidity Cash as of 5/31 6,881 UK Gov't CP 700 June debt raise 2,600 Debt Maturities '20-2H21 -2,400 Net Liquidity 5/31 pro forma 7,781 Months of liquidity 12.0 Source: Company reports, J.P. Morgan 5 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com Figure 3: CCL Capacity and Occupancy Build (JPME) Based on latest restart announcements and JPM assumptions/expectations 3Q20 4Q20 2021 2022 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 1Q 2Q 3Q 4Q Brand % of berths NAA Carnival 29% 0% 0% 25% 35% 40% 70% 85% 85% 90% % sailing JPME Princess 19% 0% 15% 20% 35% 50% 80% 90% 90% % sailing JPME Hol. America 10% 0% 15% 20% 35% 50% 80% 90% 90% % sailing JPME Seabourn 1% 0% 0% 0% 20% 40% 100% 100% 100% % sailing JPME EA Costa 17% 0% 15% 20% 25% 40% 70% 85% 85% 85% % sailing JPME AIDA 12% 15% 25% 30% 35% 45% 75% 90% 95% 95% % sailing JPME P&O 6% 30% 45% 60% 75% 90% 90% 90% % sailing JPME Cunard 3% 100% 100% 100% 100% 100% % sailing JPME P&O Aus 1% 50% 100% 100% 100% 100% 100% 100% 100% % sailing JPME Blended capacity 0% 0% 2% 6% 22% 29% 43% 66% 85% 89% 90% JPME 1% 19% 71% 90% Load/occupancy 40% 50% 55% 60% 65% 80% 100% 100% JPME 40% 55% 86% 100% Source: Company reports, J.P. Morgan 6 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com Investment Thesis, Valuation and Risks Carnival Corporation (Neutral; Price Target: $18.00) Investment Thesis Stay Sidelined on CCL. CCL's growth metrics were sluggish heading into the crisis, as older capacity and regional footprints were more impacted by elevated capacity growth in Alaska and Europe, respectively. During COVID-19, CCL likely sustained the most direct brand damage (Princess, Holland America). Looking forward, we expect CCL to track the broader industry, albeit continue to underperform peers on account of its sheer size and lack of unique growth drivers becoming a larger competitive disadvantage post COVID-19 than pre COVID-19. Valuation Our Dec 2020 price target moves to $18, from $20, and is based on 10x 2022E EV/EBITDA, discounted back 1 year at 10% and minus 2022 year-end net debt. This implies CCL can trade at an EV/berth of $110k. CCL's historical forward EV/EBITDA range is 6.3x to 26.3x, with a 23-year average of 11.9x, though it traded just over 6.0x in 1Q09, and traded at 7.0x late 2019; our valuation assumption implies that investors are willing to ascribe an above-trough multiple on wellunderstood depressed earnings. CCL Price Target Methodology and Valuation $ in millions Valuation Multiple Sensitivity Analysis 2022E EBITDA 3,733 3,733 3,733 x Assigned Multiple 9.5x 10.0x 10.5x Equals Enterprise Value 35,467 37,334 39,201 Less: 2022 Net Debt 20,963 20,963 20,963 Add: Convertible Debt 2,125 2,125 2,125 Equals: Equity Value 16,629 18,496 20,362 Share count 958 958 958 Discounted back 1 year @ 10% Equals: Fair Value $16 $18 $19 CurrentPrice $16.16 $16.16 $16.16 Total Potential Return -2% 9% 20% Implied 2022E P/E 80.3x 89.3x 98.3x Implied 2022E EV/Berth ($k) $119 $126 $132 EPS P/E CAGR Net Asset Market Net Asset Year EPS Growth Multiples (3 yr) PEG LT Avg. P/E Value cap Discount 2022E 0.20 NA 82.2x NA NA 16.3x 2021E (3.46) NA -4.7x NA NA 2020E (9.81) NA NA 16,681 15,484 7% 2019 (9.81) -330% -1.6x EV/EBITDA Year Shares (EOP) Mkt Cap Net Debt Adj Net Debt EV EBITDA EV/EBITDA Berths EV/Berth ($k) 2022E 958 15,484 20,963 18,838 34,323 3,733 9.2x 297,021 $116 2021E 757 12,232 21,067 18,942 31,174 762 40.9x 283,571 $110 2020E 757 12,232 18,952 16,827 29,059 (4,386) NA 268,735 $108 2019 687 11,100 18,952 18,952 30,052 (4,386) -6.9x 252,635 $119 Source: J.P. Morgan estimates 7 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com Risks to Rating and Price Target Potential upside risks to our rating and price target include 1) stronger than expected improvement in the cruise consumer; 2) greater than expected growth in cruise ticket pricing; 3) a vaccine announcement; and 4) less than expected structural damage to cruise demand in the wake of COVID-19. Potential downside risks to our rating and price target include: 1) continued bookings slowdown and/or tail-risk associated with COVID-19; 2) investor sentiment toward consumer discretionary stocks could erode and valuation multiples could contract further; 3) fuel and foreign exchange costs could escalate meaningfully; 4) risks associated with one or more large shareholder groups controlling a large portion of outstanding stock; 5) legal risk from actions taken during COVID-19 crisis. CCL Model Figure 4: Carnival Corp. & Plc. - EPS Model $ in millions (except per share values) 2018 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20E 4Q20E 2020E 2021E 2022E Quarter Ended 11/30/18 02/28/19 05/31/19 08/31/19 11/30/19 11/30/19 02/28/20 05/31/20 08/31/20 11/30/20 11/29/20 11/29/21 11/29/22 Revenues Passenger Ticket 13,930 3,199 3,257 4,477 3,171 14,104 3,234 446 8 267 3,954 7,772 12,081 Onboard & Other 4,679 1,446 1,510 1,855 1,520 6,331 1,504 270 4 144 1,921 3,527 5,590 Gross Cruise Revenues 18,609 4,645 4,767 6,332 4,691 20,435 4,738 716 11 411 5,876 11,299 17,671 yoy % change 7.7% 10.1% 10.5% 11.7% 6.5% 9.8% 2.0% -85.0% -99.8% -91.2% -71.2% 92.3% 56.4% Other (Tour) 272 29 71 200 91 391 52 24 0 10 86 171 257 Total Revenues 18,881 4,674 4,838 6,532 4,782 20,826 4,790 740 12 420 5,962 11,470 17,928 yoy % change 1.0% 10.4% 11.0% 11.9% 7.3% 10.3% 2.5% -84.7% -99.8% -91.2% -71.4% 92.4% 56.3% Less: Commissions, Transportation & Other 2,590 709 613 803 595 2,720 766 297 20 63 1,146 1,499 2,330 Less: Onboard & Other 638 467 485 668 481 2,101 471 114 1 46 632 1,171 1,855 Net Cruise Revenues 15,381 3,498 3,669 4,861 3,615 15,643 3,501 305 (10) 302 4,098 8,630 13,486 yoy % change 7.3% 2.4% 1.9% 3.4% -1.3% 1.7% 0.1% -91.7% -100.2% -91.6% -73.8% 110.6% 56.3% Expenses Payroll & Related 2,190 557 566 548 578 2,249 610 705 120 199 1,633 1,729 2,131 Food 1,065 268 269 284 262 1,083 277 108 2 47 433 789 1,027 Fuel 1,619 381 423 401 358 1,563 396 201 2 58 657 1,160 1,473 Other Ship Operating 2,819 731 742 719 733 2,925 1,001 471 289 357 2,117 2,405 2,805 Selling & Administrativ e (Cruise) 2,439 629 621 563 667 2,480 678 492 260 309 1,738 1,785 2,324 Ship Impairments & Other 589 Goodwill & trademark impairment 1,364 Net Cruise Costs 10,132 2,566 2,621 2,515 2,598 10,300 2,962 3,930 671 969 8,533 7,868 9,758 yoy % change 4.0% 3.0% 2.7% 1.7% -0.7% 1.7% 15.4% 49.9% -73.3% -62.7% -17.2% -7.8% 24.0% EBITDA 5,342 903 1,058 2,437 1,039 5,437 591 (3,601) (696) (680) (4,386) 762 3,733 yoy % change 14.8% -2.2% 0.3% 5.7% -1.9% 1.8% -34.6% NA NA NA -180.7% -117.4% 390.0% Margin 28.3% 19.3% 21.9% 37.3% 21.7% 26.1% 12.3% NA NA NA -73.6% 6.6% 20.8% Depreciation & Amortization 2,017 516 542 548 554 2,160 570 577 577 554 2,279 2,280 2,373 Operating Income (EBIT) 3,325 387 516 1,889 485 3,277 21 (4,178) (1,273) (1,234) (6,664) (1,518) 1,360 yoy % change 18.5% -11.0% -5.0% 5.3% -12.3% -1.4% -94.6% NA NA NA -303.4% -77.2% -189.6% Margin 17.6% 8.3% 10.7% 28.9% 10.1% 15.7% 0.4% NA NA NA -111.8% -13.2% 7.6% yoy bps change 1.6% -2.0% -1.8% -1.8% -2.3% -1.9% -7.8% NA NA NA -127.5% 98.5% 20.8% Interest Expense, Net (178) (47) (49) (44) (42) (182) (50) (176) (242) (268) (736) (1,107) (1,172) Other Income (Expense), Net 14 (2) (7) (18) (6) (33) (741) (31) 0 0 (772) 0 0 Fuel derivatives, net 27 0 0 0 0 0 0 0 0 0 0 0 0 Income Before Income Taxes (EBT) 3,188 338 459 1,827 437 3,061 (770) (4,385) (1,515) (1,502) (8,172) (2,625) 188 Income Tax Benefit (Expense), Net (54) (2) (8) (47) (14) (71) (11) 11 4 4 8 2 (0) Tax Rate 1.7% 0.6% 1.7% 2.6% 3.2% 2.3% -1.4% 0.3% 0.3% 0.3% 0.1% 0.1% 0.1% Net Income 3,134 336 451 1,780 423 2,990 (781) (4,374) (1,511) (1,498) (8,164) (2,623) 188 GAAP EPS 4.42 0.48 0.65 2.58 0.61 4.33 -1.14 -6.07 -2.00 -1.98 -11.18 -3.46 0.20 Nonrecurring Items (per Share) 0.00 0.01 0.05 0.01 0.07 1.37 Adjusted EPS 4.26 0.49 0.66 2.63 0.62 4.40 0.23 (6.07) (2.00) (1.98) (9.81) (3.46) 0.20 yoy % change 11.6% -6.8% -2.8% 11.1% -10.3% 3.2% -53.1% NA -176.0% -416.8% -323.1% NA NA Common Shares Outstanding - Basic 776 776 776 776 686 690 682 718 754 754 727 754 754 Average Diluted Shares Count 710 695 693 691 688 692 684 721 757 757 730 757 958 Dividend/Share 1.95 0.50 0.50 0.50 0.50 1.95 0.50 0.00 0.00 0.00 0.50 0.00 0.00 Source: Company Reports and J.P. Morgan estimates. 8 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com Figure 5: Carnival Corp. & Plc. Balance Sheet, Free Cash Flow and ROIC $ in millions Balance Sheet 2018 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20E 4Q20E 2020E 2021E 2022E Cash 982 649 1,202 1,153 518 518 1,354 6,881 7,487 6,113 6,113 3,632 3,922 Trade & Other receivables, net 358 406 405 441 444 444 405 604 508 449 449 591 554 Inventories 450 444 501 482 427 427 440 362 306 304 304 280 348 Prepaid expenses and other current assets / derivs 436 603 727 636 671 671 687 374 356 341 341 315 390 Current Assets 2,226 2,102 2,835 2,712 2,060 2,060 2,886 8,221 8,657 7,207 7,207 4,818 5,214 PP&E, net 35,336 37,005 36,814 36,466 38,131 38,131 38,023 37,139 34,936 35,926 35,926 36,031 36,594 Operating Lease right-of-use assets 1,469 1,413 1,413 1,413 1,413 1,413 1,413 Other long-term assets 1,914 1,880 1,956 1,937 1,955 1,955 1,216 1,086 1,086 1,086 1,086 1,086 1,086 Goodwill and tradenames 2,925 2,943 2,907 2,886 2,912 2,912 3,349 1,958 1,958 1,958 1,958 1,958 1,958 Total Assets 42,401 43,930 44,512 44,001 45,058 45,058 46,943 49,817 48,049 47,590 47,590 45,305 46,264 Accounts Payable & Accrued Expenses 2,384 2,435 2,467 2,413 2,565 2,565 2,658 3,152 1,952 1,987 1,987 1,983 2,005 Other Liabilities 168 153 153 153 153 153 153 Customer Deposits 4,395 4,755 5,815 4,674 4,735 4,735 4,690 2,618 2,418 2,418 2,418 3,102 3,641 Current Liabilities ex LTD 6,779 7,190 8,282 7,087 7,300 7,300 7,516 5,923 4,523 4,558 4,558 5,238 5,799 Long term debt (incl short term borrowing) 10,323 11,586 11,174 10,738 11,502 11,502 12,938 20,805 24,064 25,065 25,065 24,699 24,885 Other long-term liabilities 856 913 948 881 890 890 2,199 2,248 133 137 137 161 184 Other Liabilities 11,179 12,499 12,122 11,619 12,392 12,392 15,137 23,053 24,197 25,202 25,202 24,860 25,069 Other Total Shareholders' Equity (Deficit) 24,443 24,241 24,108 25,295 25,366 25,366 24,290 20,840 19,329 17,831 17,831 15,208 15,396 Total Liabilities and Shareholders' Equity 42,401 43,930 44,512 44,001 45,058 45,058 46,943 49,816 48,049 47,590 47,590 45,305 46,264 Balance Sheet Summary Cash & Cash Equivalents 982 649 1,202 1,153 518 518 1,354 6,881 7,487 6,113 6,113 3,632 3,922 Total Long-Term Debt 10,323 11,586 11,174 10,738 11,502 11,502 12,938 20,805 24,064 25,065 25,065 24,699 24,885 Net Debt 9,341 10,937 9,972 9,585 10,984 10,984 11,584 13,924 16,577 18,952 18,952 21,067 20,963 change in net debt 541 1,596 (965) (387) 1,399 1,643 600 2,340 2,653 2,375 7,968 2,116 (104) Equity 24,443 24,241 24,108 25,295 25,366 25,366 24,290 20,840 19,329 17,831 17,831 15,208 15,396 Free Cash Flow Model 2018 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20E 4Q20E 2020E 2021E 2022E Quarter Ended 11/30/18 02/28/19 05/31/19 08/31/19 11/30/19 11/30/19 02/28/20 05/31/20 08/31/20 11/30/20 11/29/20 11/29/21 11/29/22 Net Income 3,134 336 451 1,780 423 2,990 (781) (4,374) (1,511) (1,498) (8,164) (2,623) 188 Add: Depreciation & Amortization 2,017 516 542 548 554 2,160 570 577 577 554 2,279 2,280 2,373 Add: SBC 65 20 7 11 8 46 20 18 6 4 48 23 23 Wo rking Capital changes, ex. Customer Deposits (175) (127) (104) (30) (74) (335) 154 928 (1,030) 110 163 (96) (84) Increase/(Decrease) in Customer Deposits 539 358 1,158 (1,107) (22) 387 (36) (1,951) (200) 0 (2,187) 684 539 Other Operating (non-cash adjustments, Equity Income) (31) 13 (1) 43 172 227 989 2,082 0 0 3,071 0 0 Equals Operating Cash Flow 5,549 1,116 2,053 1,245 1,061 5,475 916 (2,720) (2,158) (830) (4,792) 268 3,040 Less: Maintenance Capex + Process Payments (1,900) (500) (500) (500) (500) (2,000) (503) (350) (345) (345) (1,543) (1,000) (1,000) Equals Discretionary FCF 3,649 616 1,553 745 561 3,475 413 (3,070) (2,503) (1,175) (6,335) (732) 2,040 Less: New Ship Capex, net of process payments (1,849) (1,629) (392) 73 (1,481) (3,429) (823) 0 0 (1,200) (2,023) (1,384) (1,936) Less: Dividends (1,380) (346) (346) (346) (346) (1,384) (341) (348) 0 0 (689) 0 0 Less: Share Repurchases (1,468) (274) (42) (156) (131) (603) 0 558 0 0 558 0 0 Less: Acquisitions/Ship Sales 389 226 10 Debt Issuance/Amortizaton/Pay Down, net 1,436 7,867 3,109 1,001 13,413 (366) 186 Other Investing/Finance cash flows 118 37 192 71 (2) 298 (73) 511 Net Change to Cash (541) (1,596) 965 387 (1,399) (1,643) 838 5,528 606 (1,374) 5,598 (2,482) 290 Credit Ratios: EBITDA/Interest 30.0x 29.6x 29.0x 29.8x 29.8x 29.8x 27.6x 1.5x -5.2x -6.0x -6.0x 0.7x 3.2x Gross Debt/EBITDA (TTM) 1.9x 2.2x 2.1x 2.0x 2.1x 2.1x 2.5x 44.6x -9.0x -5.7x -5.7x 32.4x 6.7x Net Debt/EBITDA (TTM) 1.7x 2.1x 1.9x 1.8x 2.0x 2.0x 2.3x 29.9x -6.2x -4.3x -4.3x 27.6x 5.6x ROIC 2018 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20E 4Q20E 2020E 2021E 2022E EBIT 3,325 3,277 -6,664 -1,518 1,360 Tax Rate 1.7% 2.3% 0.1% 0.1% 0.1% Equals Net Operating Profit After Tax (NOPAT) 3,269 3,201 (6,658) (1,517) 1,359 Net Debt 9,341 10,984 18,952 21,067 20,963 Plus Shareholders' Equity 24,443 25,366 17,831 15,208 15,396 Equals Invested Capital (year end) 33,784 36,350 36,782 36,275 36,359 - Ships under Construction 1,004 1,044 1,834 2,234 2,634 Equals Adjusted Invested Capital 32,780 35,306 34,948 34,041 33,725 ROIC 9.8% 9.1% -18.2% -4.2% 3.7% Adjusted ROIC (ex-CIP) 10.1% 9.4% -19.0% -4.4% 4.0% Source: Company Reports and J.P. Morgan estimates. 9 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com Figure 6: Carnival Corp. & Plc. - Revenue Drivers $ in millions REVENUE DRIVERS 2018 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20E 4Q20E 2020E 2021E 2022E Quarter Ended 11/30/18 02/28/19 05/31/19 08/31/19 11/30/19 11/30/19 02/28/20 05/31/20 08/31/20 11/30/20 11/29/20 11/29/21 11/29/22 Cruise Operating Statistics Available Lower Berth Days (ALBD) 83.9 21.3 21.6 22.7 21.8 87.4 21.98 3.62 0.14 4.33 30.06 66.3 86.3 yoy % change 1.9% 4.1% 4.6% 5.8% 2.4% 4.2% 3.2% -83.3% -99.4% -80.1% -65.6% 120.6% 30.2% memo: pre-COVID forecasts 22.58 22.94 24.02 23.69 93.23 98.17 102.84 memo: % of pre-COVID 0.6% 19.2% 70.7% 90.3% Occupancy 106.9% 104.8% 105.3% 113.0% 104.0% 106.8% 104.3% 96.1% 40.0% 55.0% 73.9% 86.3% 100.0% yoy change (bps) 1.0% 0.1% -0.4% 0.4% -0.5% -0.1% -0.5% -9.2% -73.0% -49.0% -32.9% 12.4% 13.8% Passenger Cruise Days (PCD) 89.7 22.3 22.8 25.7 22.6 93.4 22.9 3.5 0.1 2.4 28.8 57.2 86.3 yoy % change 2.8% 4.2% 4.2% 6.2% 1.9% 4.2% 2.7% -84.7% -99.8% -89.5% -69.1% 98.4% 50.9% Cruise Revenues Passenger Ticket 13,930 3,199 3,257 4,477 3,171 14,104 3,234 446 8 267 3,954 7,772 12,081 yoy % change 7.6% 1.6% 2.0% 2.8% -2.0% 1.2% 1.1% -86.3% -99.8% -91.6% -72.0% 96.5% 55.4% Passenger Ticket per PCD (in $) 155.3 143.3 142.9 174.3 140.2 151.0 141.1 128.2 139.5 112.1 137.1 135.9 140.0 yoy % change 4.6% -2.5% -2.1% -3.2% -3.8% -2.8% -1.6% -10.3% -20.0% -20.0% -9.2% -0.9% 3.0% memo: % of 2019 90.0% 92.7% Onboard & Other (adjusted to exclude accounting change) 4,679 1,446 1,510 1,855 1,520 6,331 1,504 270 4 144 1,921 3,527 5,590 yoy % change 8.1% 35.0% 34.6% 41.0% 29.9% 35.3% 4.0% -82.1% -99.8% -90.5% -69.7% 83.6% 58.5% Onboard & Other per PCD (in $) 52.2 64.8 66.3 72.2 67.2 67.8 65.6 77.6 65.0 60.5 66.6 61.7 64.8 yoy % change 5.1% 1.3% 17.1% -10.0% -10.0% -1.7% -7.4% 5.0% memo: % of 2019 91.0% 95.6% Gross Cruise Revenues 18,609 4,645 4,767 6,332 4,691 20,435 4,738 716 11 411 5,876 11,299 17,671 yoy % change 7.7% 10.1% 10.5% 11.7% 6.5% 9.8% 2.0% -85.0% -99.8% -91.2% -71.2% 92.3% 56.4% Other (Tour) 272 29 71 200 91 391 52 24 0 10 86 171 257 yoy % change 15.7% 123.1% 69.0% 19.8% 82.0% 43.8% 79.3% -66.2% -99.8% -89.5% -78.0% 98.4% 50.9% Total Revenues 18,881 4,674 4,838 6,532 4,782 20,826 4,790 740 12 420 5,962 11,470 17,928 yoy % change 7.8% 10.4% 11.0% 11.9% 7.3% 10.3% 2.5% -84.7% -99.8% -91.2% -71.4% 92.4% 56.3% Less: Commissions, Transportation & Other 2,590 709 613 803 595 2,720 766 297 20 63 1,146 1,499 2,330 yoy % change 9.8% 6.9% 6.2% 5.7% 0.8% 5.0% 8.0% -51.5% -97.6% -89.4% -57.9% 30.8% 55.4% % of Passenger Ticket Revenues 18.6% 22.2% 18.8% 17.9% 18.8% 19.3% 23.7% 66.6% 17.9% 18.8% 29.0% 19.3% 19.3% yoy change (bp) 0.4% 1.1% 0.8% 0.5% 0.5% 0.7% 1.5% 47.8% 0.0% 0.0% 9.7% -9.7% 0.0% Less: Onboard & Other (adjusted to exclude accounting chg) 638 467 485 668 481 2,101 471 114 1 46 632 1,171 1,855 yoy % change 8.7% 233.6% 251.4% 222.7% 214.4% 229.3% 0.9% -76.5% -99.8% -90.5% -69.9% 85.3% 58.5% % of Onboard & Other Revenues 13.6% 32.3% 32.1% 36.0% 31.6% 33.2% 31.3% 42.2% 36.0% 31.6% 32.9% 33.2% 33.2% Net Cruise Revenues 15,381 3,469 3,669 4,861 3,615 15,614 3,501 305 (10) 302.1 4,098 8,630 13,486 yoy % change 7.3% 1.6% 1.9% 3.4% -1.3% 1.5% 0.9% -91.7% -100.2% -91.6% -73.8% 110.6% 56.3% Net Yield = Net Cruise Rev. per ALBD (in $) 183.38 162.87 169.51 213.89 166.18 178.60 159.30 NA NA 69.84 136.34 130.13 156.23 yoy % change 5.3% -2.4% -2.6% -2.3% -3.6% -2.6% -2.2% NA NA -58.0% -23.7% -4.6% 20.1% Net Cruise Revenues (Constant CCY) 15,154 3,575 3,786 4,953 3,682 15,996 3,537 NA NA 305 3,842 8,630 13,486 yoy % change 5.8% 4.7% 5.2% 5.3% 0.5% 4.0% 2.0% NA NA -91.6% -75.4% 110.6% 56.3% Net Yield = Net Cruise Rev. per ALBD (Constant CCY) 180.68 167.85 174.91 217.93 169.26 182.97 160.94 NA NA 70.54 127.82 130.13 156.23 yoy % change 3.8% 0.5% 0.5% -0.5% -1.8% -0.2% -1.2% NA NA -57.6% -28.4% -4.6% 20.1% 2-year % change 8.3% 4.5% 5.6% 2.4% 1.8% 3.6% -0.6% NA NA -59.4% -28.7% -33.0% 15.5% % of 2019 (Pre-COVID peak) 42.4% 71.6% 72.9% 87.5% Source: Company Reports and J.P. Morgan estimates. 10 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com Figure 7: Carnival Corp. & Plc. - Expense Drivers $ in millions EXPENSE DRIVERS 2018 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 3Q20E 4Q20E 2020E 2021E 2022E Quarter Ended 11/30/18 02/28/19 05/31/19 08/31/19 11/30/19 11/30/19 02/28/20 05/31/20 08/31/20 11/30/20 11/29/20 11/29/21 11/29/22 Cruise Expenses Payroll & Related 2,190 557 566 548 578 2,249 610 705 120 199 1,633 1,729 2,131 yoy % change 3.9% -0.2% 4.2% 2.0% 4.7% 2.7% 9.5% 24.6% -78.1% -65.7% -27.4% 5.8% 23.3% Payroll & Related per ALBD (in $) 26.1 26.2 26.1 24.1 26.6 25.7 27.8 194.7 21.7 23.9 54.3 24.7 24.7 yoy % change 2.0% -4.1% -0.4% -3.6% 2.3% -1.5% 6.1% 644.6% -10.0% -10.0% 111.2% -4.0% 0.0% Food 1,065 268 269 284 262 1,083 277 108 2 47 433 789 1,027 yoy % change 3.3% 1.5% 1.5% 3.3% 0.4% 1.7% 3.4% -59.9% -99.5% -82.1% -60.0% 82.0% 30.2% Food per ALBD (in $) 12.7 12.6 12.4 12.5 12.0 12.4 12.6 29.8 11.2 10.8 14.4 11.9 11.9 yoy % change 1.4% -2.5% -3.0% -2.4% -2.0% -2.4% 0.2% 140.0% -10.0% -10.0% 16.4% -4.0% 0.0% Fuel 1,619 381 423 401 358 1,563 396 201 2 58 657 1,160 1,473 yoy % change 30.1% 6.1% 13.4% -7.6% -21.0% -3.5% 3.9% -52.5% -99.6% -83.7% -58.0% 76.6% 26.9% Fuel per ALBD (in $) 19.3 17.9 19.5 17.6 16.5 17.9 18.0 55.5 12.9 13.5 21.9 17.5 17.1 yoy % change 27.7% 2.0% 8.4% -12.7% -22.8% -7.4% 0.7% 184.0% -27.0% -18.0% 22.3% -20.0% -2.5% Fuel Consumption (Metric Tons) 3.30 0.83 0.84 0.82 0.83 3.31 0.83 0.48 0.00 0.16 1.4777 3.18 4.03 yoy % change 0.3% 1.1% 2.0% 0.5% -1.4% 0.5% 0.1% -42.3% -99.4% -80.6% -55.4% 115.1% 26.9% Fuel Consumption (Metric Tons) / ALBD 0.04 0.04 0.04 0.04 0.04 0.04 0.13 0.035 0.037 0.049 0.048 0.047 yoy % change -3.0% 245.1% -2.5% -2.5% 29.8% -2.5% -2.5% Fuel Price ($ per Metric Ton) 491 459 507 487 434 472 477 418 365 365 445 365 365 yoy % change 29.7% 5.0% 11.4% -8.3% -19.8% -4.0% 3.9% -17.6% -25.0% -15.9% -5.8% -17.9% 0.0% Other Ship Operating 2,819 724 735 684 698 2,841 780 464 289 357 1,889 2,405 2,805 yoy % change 4.0% 5.2% -4.4% 1.0% 1.9% 0.8% 7.7% -36.9% -57.8% -48.9% -33.5% 27.3% 16.6% Other Ship Operating per ALBD (in $) 33.6 34.0 34.0 30.1 32.1 32.5 35.5 128.1 27.1 28.9 62.9 31.2 31.2 yoy % change 2.1% 1.1% -8.6% -4.5% -0.5% -3.3% 4.4% 277.4% -10.0% -10.0% 93.4% -4.0% 0.0% Selling & Administrative (Cruise) 2,439 629 621 563 667 2,480 652 492 260 309 1,712 1,785 2,324 yoy % change 8.4% 2.1% 4.5% -1.7% 1.7% 1.7% 3.7% -20.8% -53.9% -53.7% -31.0% 4.3% 30.2% % Selling & Administrative (Total) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 96.2% 100.0% 100.0% 100.0% 96.8% 96.8% 96.8% Selling & Administrative (Total) 2,439 629 621 563 667 2,480 678 492 275 324 1,768 1,844 2,400 yoy % change 7.8% 2.1% 4.5% -1.7% 1.7% 1.7% 7.8% -20.8% -51.2% -51.5% -28.7% 4.3% 30.2% Selling & Admin. (Total) per ALBD (in $) 29.1 29.5 28.7 24.8 30.7 28.4 30.9 135.9 18.6 23.0 58.8 27.8 27.8 yoy % change 5.8% -1.9% -0.1% -7.2% -0.7% -2.4% 4.5% 373.6% -25.0% -25.0% 107.4% -2.0% 0.0% Net Cruise Costs 10,132 2,559 2,614 2,480 2,563.0 10,216 2,715 1,970 671 969.1 6,326 7,868 9,758 yoy % change 8.5% 3.0% 2.8% -0.6% -1.7% 0.8% 6.1% -24.6% -72.9% -62.2% -38.1% 24.4% 24.0% Net Cruise Costs per ALBD (in $) 120.80 120.15 120.77 109.12 117.82 116.86 123.54 NA 4,930.19 224.05 210.43 118.64 113.04 yoy % change 6.4% -1.1% -1.8% -6.1% -4.0% -3.3% 2.8% NA 4418.1% 90.2% 80.1% -43.6% -4.7% Net Cruise Costs Ex Fuel per ALBD (in $) 101.50 102.26 101.22 91.48 101.37 98.98 105.52 NA 4,917.32 210.55 188.57 101.14 95.98 yoy % change 3.2% -1.6% -3.5% -4.7% 0.0% -2.5% 3.2% NA 5275.5% 107.7% 90.5% -46.4% -5.1% Net Cruise Costs Ex Fuel (Constant CCY) 8,387 2,233 2,250 2,113 2,262 8,858 2,340 NA 676 920 3,937 6,707 8,285 yoy % change 3.6% 5.0% 3.6% 2.5% 5.0% 4.1% 7.4% NA -67.5% -58.3% -54.5% 18.3% 23.5% Net Cruise Costs Ex Fuel per ALBD (Constant CCY) 100.00 104.84 103.95 92.97 103.99 101.32 106.47 NA 4,966.62 212.79 130.97 101.14 95.98 yoy % change 1.6% 0.9% -0.9% -3.2% 2.6% -0.2% 4.1% NA 5329.4% 109.9% 32.3% -46.4% -5.1% Source: Company reports and J.P. Morgan estimates. 11 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com Carnival Corporation: Summary of Financials Income Statement - Annual FY18A FY19A FY20E FY21E FY22E Income Statement - Quarterly 1Q20A 2Q20A 3Q20E 4Q20E Revenue 15,381 15,643 5,962 8,630 13,486 Revenue 4,790A 740A 12 420 Adj. EBITDA 5,342 5,437 (4,386) 762 3,733 Adj. EBITDA 591A (3,601)A (696) (680) D&A (2,017) (2,160) (2,279) (2,280) (2,373) D&A (570)A (577)A (577) (554) Adj. EBIT 3,325 3,277 (6,664) (1,518) 1,360 Adj. EBIT 21A (4,178)A (1,273) (1,234) Net Interest (178) (182) (736) (1,107) (1,172) Net Interest (50)A (176)A (242) (268) Adj. PBT 3,188 3,061 (8,172) (2,625) 188 Adj. PBT (770)A (4,385)A (1,515) (1,502) Tax (54) (71) 8 2 (0) Tax (11)A 11A 4 4 Adj. Net Income 3,027 3,042 (7,162) (2,623) 188 Adj. Net Income 156A (4,374)A (1,511) (1,498) Reported EPS 4.41 4.32 (11.19) (3.46) 0.20 Reported EPS (1.14)A (6.07)A (2.00) (1.98) Adj. EPS 4.26 4.40 (9.81) (3.46) 0.20 Adj. EPS 0.23A (6.07)A (2.00) (1.98) DPS 1.95 1.95 0.50 0.00 0.00 DPS 0.50A 0.00A 0.00 0.00 Payout ratio 44.2% 45.1% NM 0.0% 0.0% Payout ratio NMA 0.0%A 0.0% 0.0% Shares outstanding 710 692 730 757 958 Shares outstanding 684A 721A 757 757 . Balance Sheet & Cash Flow Statement FY18A FY19A FY20E FY21E FY22E Ratio Analysis FY18A FY19A FY20E FY21E FY22E Cash and cash equivalents 982 518 6,113 3,632 3,922 EBITDA margin 34.7% 34.8% (73.6%) 8.8% 27.7% Total debt 10,323 11,502 25,065 24,699 24,885 EBIT margin 21.6% 20.9% (111.8%) (17.6%) 10.1% Net debt 9,341 10,984 18,952 21,067 20,963 Net profit margin 19.7% 19.4% (120.1%) (30.4%) 1.4% Shareholders' equity 24,443 25,366 17,831 15,208 15,396 ROE 12.4% 12.2% (33.2%) (15.9%) 1.2% ROA 7.3% 7.0% (15.5%) (5.6%) 0.4% Net income (including charges) 3,134 2,990 (8,164) (2,623) 188 ROCE 9.6% 8.9% (16.7%) (3.7%) 3.4% D&A 2,017 2,160 2,279 2,280 2,373 Net debt/equity 0.4 0.4 1.1 1.4 1.4 Other - - - - - Net debt/EBITDA (x) 1.7 2.0 -4.3 27.6 5.6 Maintenance Capex (3,749) (5,429) (3,566) (2,384) (2,936) P/E (x) 3.8 3.7 NM NM 82.2 Adj. Free cash flow to firm (541) (1,643) 5,598 (2,482) 290 P/BV (x) 0.5 0.4 0.7 0.8 1.0 y/y Growth (1160.8%) 203.7% (440.7%) (144.3%) (111.7%) EV/EBITDA (x) 4.0 4.2 NM 43.5 8.8 Dividend Yield 12.1% 12.1% 3.1% 0.0% 0.0% FCFF/share (0.76) (2.38) 7.67 (3.28) 0.30 Revenue y/y Growth 7.3% 1.7% (61.9%) 44.8% 56.3% EBITDA y/y Growth 14.8% 1.8% (180.7%) (117.4%) 390.0% Tax rate 1.7% 2.3% (0.1%) (0.1%) 0.1% Adj. Net Income y/y Growth 9.2% 0.5% (335.4%) (63.4%) (107.2%) EPS y/y Growth 11.6% 3.2% (323.1%) (64.7%) (105.7%) DPS y/y Growth 25.8% 0.0% (74.4%) (100.0%) - Source: Company reports and J.P. Morgan estimates. Note: $ in millions (except per-share data).Fiscal year ends Nov. o/w - out of which 12 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com Analyst Certification: The research analyst(s) denoted by an "AC" on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an "AC" on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect the research analyst's personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, if applicable, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention. All authors named within this report are research analysts unless otherwise specified. In Europe, Sector Specialists may be shown on this report as contacts but are not authors of the report or part of the Research Department. Important Disclosures Market Maker/ Liquidity Provider: J.P. Morgan is a market maker and/or liquidity provider in the financial instruments of/related to Carnival Corporation. Manager or Co-manager: J.P. Morgan acted as manager or co-manager in a public offering of securities or financial instruments (as such term is defined in Directive 2014/65/EU) for Carnival Corporation within the past 12 months. Client: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients: Carnival Corporation. Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as investment banking clients: Carnival Corporation. Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients, and the services provided were non-investment-banking, securities-related: Carnival Corporation. Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients, and the services provided were non-securities-related: Carnival Corporation. Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking services from Carnival Corporation. Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Carnival Corporation. Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Carnival Corporation. Debt Position: J.P. Morgan may hold a position in the debt securities of Carnival Corporation, if any. Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium reports and all J.P. Morgancovered companies by visiting https://www.jpmm.com/research/disclosures, calling 1-800-477- 0406, or e-mailing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgan's Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477- 0406 or e-mail research.disclosure.inquiries@jpmorgan.com. 13 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com Carnival Corporation (CCL, CCL US) Price Chart Date Rating Price ($) Price Target ($) 26-Sep-17 N 63.50 69 N $77 N $65 N $58 N $46 115 19-Dec-17 N 66.60 75 22-Mar-18 N 67.06 77 N $75 N $6 6 N $57 N $5 1 N $54 N $20 25-Jun-18 N 63.53 64 92 27-Sep-18 N 66.98 66 N $69 N $64 N $61 N $53 N $ 48 N $16 11-Oct-18 N 59.06 65 69 20-Dec-18 N 55.01 61 Price($) 26-Mar-19 N 56.65 57 11-Jun-19 N 53.18 58 46 20-Jun-19 N 52.84 53 11-Sep-19 N 49.66 51 23 26-Sep-19 N 48.06 46 09-Dec-19 N 44.77 48 0 20-Dec-19 N 46.65 54 Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 20-Apr-20 N 12.56 16 17 17 18 18 18 18 19 19 19 19 20 20 20 11-Jun-20 N 20.59 20 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage May 05, 1999. All share prices are as of market close on the previous business day. The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia and ex-India) and U.K. small- and mid-cap equity research, each stock's expected total return is compared to the expected total return of a benchmark country market index, not to those analysts' coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst's coverage universe can be found on J.P. Morgan's research website, www.jpmorganmarkets.com. Coverage Universe: Montour, Brandt A: Carnival Corporation (CCL), Hilton Grand Vacations (HGV), Marriott Vacations Worldwide (VAC), Norwegian Cruise Line (NCLH), Park Hotels & Resorts (PK), Royal Caribbean Cruises (RCL) J.P. Morgan Equity Research Ratings Distribution, as of July 04, 2020 Overweight Neutral Underweight (buy) (hold) (sell) J.P. Morgan Global Equity Research Coverage 46% 39% 15% IB clients* 53% 49% 38% JPMS Equity Research Coverage 43% 42% 15% IB clients* 75% 70% 58% *Percentage of subject companies within each of the "buy," "hold" and "sell" categories for which J.P. Morgan has provided investment banking services within the previous 12 months. Please note that the percentages might not add to 100% because of rounding. For purposes only of FINRA ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above. This information is current as of the end of the most recent calendar quarter. Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com. For material information about the proprietary models used, please see the Summary of Financials in company-specific research reports and the Company Tearsheets, which are 14 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com available to download on the company pages of our client website, http://www.jpmorganmarkets.com. 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JPMS distributes in the U.S. research published by non-U.S. 16 This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} Brandt Montour, CFA North America Equity Research (1-212) 622-1111 10 July 2020 brandt.a.montour@jpmorgan.com affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised July 04, 2020. Copyright 2020 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P 17 Completed 10 Jul 2020 07:09 PM EDT Disseminated 10 Jul 2020 07:27 PM EDT This document is being provided for the exclusive use of MOLLY HURFF at JPMorgan Chase & Co. and clients of J.P. Morgan. {[{hTJ68BA9Eb0G-Y80ul8Lo67ODvZPJbyxQStQQplu_LQIANczEwm1wjWCwnjPIgKpdBQiHlrLxMQ}]} 2020 Community Programs Summary 2020 Revised Core Departmental Program (in $000) Budge t Programs Expe ns e Notes 1) Airport Community Ecology (ACE) Fund 522 522 - 2) Duwamish Valley Community Equity Program 292 292 - 3) South King County (SKC) Fund 1,500 1,500 - 4) EDD Partnership Grants 960 960 - 5) City of SeaTac Community Relief 1,400 1,400 - 6) Airport Spotlight Ad Program 1,148 1,148 - 7) Energy & Sustainability (E&S) Fund 150 150 - 8) Maritime Innovation Center 150 150 - 9) Tourism Program 2,842 2,056 786 Added $1.5M for Tourism 10) Workforce Development 4,403 3,832 571 Added $1.5M for Youth Opportunity 11) Diversity in Contracting (formerly Small Business) 1,331 100 1,232 12) High School Internship Program 749 485 265 13) Equity, Diversity & Inclusion 925 112 813 14) Sustainable Aviation Fuels & Air Emissions Program 40 40 - 15) Low Carbon Fuel Standard Support 105 105 - TOTAL 16,519 12,851 3,667 Port Memberships and Sponsorships The Port of Seattle invests $23 Million annually in memberships and sponsorships that advance professional development, community partnerships, and advocacy Memberships and sponsorships are budgeted by each division Memberships support employee professional development Sponsorships must now be sponsored by an ELT member. Proposed sponsorships are reviewed and ultimately approved by Finance, Legal and External Relations As the 2021 budget is being developed each division is being asked to reduce expenses. As part of this exercise sponsorships and memberships are being carefully evaluated. Reducing membership and sponsorship investments to some extent will be necessary Port Memberships Membership Amount Community partners $1,086,554 In 2019 the Port was a member in Professional staff support $223,000 307 organizations 142 of these organizations support community, business and/or trade Top Memberships partnerships WA Public Ports Assn $260,000 165 membership are with Airport Council Intl $202,000 professional employee organizations (ex. American Society Greater Seattle Partners $150,000 of Civil Engineers Greater Seattle Chamber $110,000 The Port paid $1,309,554 in dues AAAE $76,000 to local, state and national Puget Sound Regional Council $75,000 organizations American Assn of Port Authorities $24,500 The ten largest memberships represent $995,000 or 76% of US Travel Association $20,000 membership investments Airport Carbon Accreditation $16,000 Manufacturing Industrial Council $15,000 Port Sponsorships 2020 (YTD) Amount 2019 Amount Total $1,365.956 Total $2,580,133 Airline incentives $905,000 Airline incentives $1,445,000 Other Top Sponsorships Other Top Sponsorships Economic Summit $40,000 Cruise Connections $75,000 Port University $33,000 Airport Noise Conference $60,000 Disadvantaged Biz Training $21,000 Clipper Round the World $44,000 Fishermen's Fall Festival $20,000 Port University $35,000 Soundside Chamber $20,000 Champions of Inclusion $27,000 Pacific Marine Expo $18,500 Maritime Festival $24,000 SODO Improvement Assn $15,000 Ag History Project $20,000 Procurement Assistance Center $15,000 KEXP Deck the Dock $20,000 Highline Small Biz Dev Center $12,000 Soundside Chamber $20,000 World Trade Center Seminar Series $10,000 Fishermen's Fall Festival $20,000
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