Cruise Industry Scuttled
As the global response to the novel coronavirus (COVID-19) continues to unfold, the cruise industry has largely found itself sidelined. The industry is voluntarily suspending all cruise ship operations to and from US ports for 30 days. Unprecedented in modern times, the current disruption to the cruise industry far exceeds what it experienced in the aftermath of the 9/11 terrorist attacks.
The situation continues to evolve so rapidly that analysts such as C. Patrick Scholes of SunTrust Robinson Humphrey caution, “given how fluid the situation is at hand, everything is changing by the minute.” Prior to the latest developments, Scholes in a March 10, 2020 report wrote, “booking volume deceleration only picked up steam last week with no evidence yet that year to year volumes have started to become ‘less bad’.”
What had been unthinkable just a few days ago largely happened at the end of this week. Robin Farley of UBS noted in her March 3, 2020 report, “none of the cruise lines have plans to lay up ships.” While the ship lines estimated laying up a ship might lower fixed operating costs by 20 to 25 percent, she wrote, the belief was that it did not make economic sense to take a ship out of service for a month or two.
With global ports and destinations from Europe to India, UAE (Dubai) and now the United States, closing down, the cruise lines, however, have been forced to face difficult decisions. This was compounded by new outbreaks of the disease or exposure for passengers and crew, as well as strongly worded warnings from the U.S. and other governments. In the face of growing pressures, the industry suspended US cruises into April as well as in many other parts of the world. Virgin Voyages, which had planned to begin commercial service in just a matter of days, also pushed back its entry into service to the summer. Further, with virus containment and mitigation efforts spreading across Europe, river cruise operators including Avalon, AmaWaterways, Uniworld and Viking also began suspending operations.
“Cruise lines are now canceling their full scheduled through April to let the news subside, and then they’ll reset and begin operations,” predicts Bobby Laurie, a travel expert, and co-host of Internet TV program The Jet Set. However, in the days and weeks to come, the scenes in cruise ports around the world will be reminiscent of the mass lay-up of passenger ships that happened in September 1939 as World War II began.
As the shock wave reverberated across the industry, investors’ concerns shifted to liquidity. Among the major publicly traded companies, Royal Caribbean Cruises and Norwegian Cruise Line Holdings each immediately took steps to increase liquidity. Viking Cruises assured the markets that as a private company it had the financial resources to weather the crisis while the fledgling Virgin Voyages said it had the full support of its investors, the Virgin Group and Bain Capital, to delay the commencement of its operations.
“We fully expect the cruise lines to be able to maintain ample liquidity on reasonable terms in partnerships with their banking groups,” wrote analyst Chris Woronka of Deutsche Bank Research. She cautions that some of the more severe downside scenarios could raise leverage levels to points beyond what investors were accustomed to in the industry.
Laying the ground work for the future, the cruise industry also responded to governmental warnings developing a new set of standards and guidelines that will likely impact future operations when the industry resumes sailing.
Beyond the initial suspension, the cruise industry will continue face significant and evolving challenges that will further disrupt operations. For example, Canada has announced that it will restrict large ships carrying more than 500 passengers into the summer, which will have a significant detrimental impact on the Alaska market. At the same time, key destinations, including Italy, possibly the entire Mediterranean and even Scandinavia, may continue to limit or exclude cruising well into the summer high tourist season.
Despite all the challenges, loyal cruisers remain dedicated to the industry. They are taking advantage of the cruise lines relaxed cancelation policies and rebooking incentives to plan trips for later in 2020 and 2021. They are confident that a level of normally will again be achieved and the global community will overcome the current challenges.
Allan E. Jordan is a regular contributor to The Maritime Executive Magazine.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.