Royal Caribbean Warns of Earnings Impact from Coronavirus Outbreak

Spectrum of the Seas (file image courtesy Royal Caribbean)

Published Jan 29, 2020 11:38 PM by The Maritime Executive

The novel coronavirus first reported in Wuhan last month has spread across China, with about 7,700 confirmed cases reported as of early Thursday - more than the number of cases reported in the country during the SARS epidemic of 2002. 170 fatalities - all within China - have been linked to the new disease. 

The epidemic has had a direct impact on the cruise industry. Five cruise lines have announced cancelations or alterations for itineraries calling in China. This list includes Royal Caribbean, which has canceled three sailings for the Shanghai-based Spectrum of the Seas, the largest vessel in the Chinese market. The decision will have a measurable effect on the bottom line, the company said. 

"After consultation with national and local health authorities, the company has canceled three sailings through February 8 on the high yielding Spectrum of the Seas, currently its only ship homeported in China," Royal Caribbean announced Wednesday. "The company estimates that this (which included the Chinese new year's cruises) will impact 2020 financial results by approximately $0.10 per share. If the travel restrictions in China continue until the end of February, the company estimates that this would further impact its results by an additional $0.10 per share."

Royal Caribbean said that it is still too early to predict the long-term effects, but the epidemic could have broader impact. The company noted that an erosion of consumer confidence in China could have an impact on sales until the market normalizes. Additionally, if the Chinese government's travel restrictions continue for an extended period of time, they could have an impact on the company's financial performance.

“By our math, every lost voyage is $3 to $4 million of revenue,” said James Hardiman, the managing director of equity research for Wedbush Securities, speaking to Yahoo Finance.

Foreign sentiment on travel to China may also be affected. The U.S. Centers for Disease Control (CDC) has advised Americans to avoid travel to China if possible, and British Airways, Lufthansa and Air Canada have canceled all direct flights to China. 

Return flights have been actively encouraged: the United States government recently airlifted about 195 American citizens out of Wuhan, the center of the epidemic. The evacuees arrived at an airbase in California on Wednesday and are reported to be in good health, but they will be quarantined and monitored for three days before being cleared to move freely. 

Dockers raise concerns

Far from Chinese shores, some port workers have raised concerns about the potential for contracting the coronavirus from seafarers arriving from abroad. On Tuesday, the Maritime Union of Australia (MUA) accused the Australian government of failing to check for coronavirus infections on vessels arriving at Australian ports. 

“Our ports are a gateway to the country and not only provide access for  freight but can provide an entry point for deadly disease and other biological security threats," said MUA national secretary Paddy Crumlin. “Australian workers are going out onto to these vessels and having direct contact with foreign seafarers prior to them entering the port. Tugboat crews are receiving ships equipment that may have been in contact with infected seafarers. Linesman and other port workers all perform work with the vessel well before biosecurity agents will go up the gangway of a ship, if at all. It shouldn’t be left to these workers to provide Australia’s response to an international, viral threat."