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Cruise Industry Struggles to Regain its Footing

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By Allan E. Jordan 03-05-2020 06:35:18

After the initial shocks from the spread of the novel coronavirus (COVID-19), the cruise industry has begun taking steps to lay the groundwork for the future. They are seeking to calm the broad range of fears gripping the market but continue to be challenged by the situation that continues to evolve.

The newest fear appears to be coming from past passengers who are becoming ill after returning from a cruise. The MSC Opera recalled passengers on excursions in Greece after its captain learned that a passenger who had disembarked days earlier had tested positive for the virus. This cruise ship was permitted to continue sailing, but the Grand Princess has a tragic situation unfolding where a person died from the virus approximately two weeks after his cruise.  

The cruise ship is currently being held offshore in California while test kits are shuttled between the ship and shore for up to approximately 100 passengers and crew members. The outcome of this situation may shape the next stage of challenges for the cruise industry.

Recently, the impact on the cruise business had been stabilizing with some analysts estimating that bookings had achieved a “net-zero” position balancing new reservations with the continuing cancellations. In the days after the outbreak, bookings and inquiries declined precipitously. For example, one travel counselor experienced a 60 percent decline in cruise bookings in February 2020 compared to 2019, while one agent reported losing about $118,000 worth of sales in one day.

The cruise industry has been “scrambling to make sense of the situation,” says Michelle Osborn, owner of Outta Here Travels in Pampa, Texas. She has not received cancellations but notes most of her bookings are for the summer and fall seasons permitting travelers to take a wait and see attitude. Other travel counselors agree, explaining their focus has been on existing clients.  

“What should be our busy time for new reservations is turning into our busy time to manage the reservations we have,” says Andrea Norfolk, president of Shoreline Destinations, a Maryland-based agency specializing in destination weddings and trips. She, however, points out that the cruise lines’ efforts, including modified cancellation policies, “have saved some of my bookings from canceling to a wait and see scenario.”

According to analyst Robin Farley at UBS, “Our channel checks indicate that call volume (or web traffic) to cruise sellers has been down 20-30 percent,” but she believes shorter Caribbean bookings haven’t been affected. “Historically price points get people to travel again,” but she notes so far they have not seen the lines taking big actions for sailings in the second half of 2020 or 2021.

The virus hit the cruise industry at the peak of “wave season,” a period in time that traditionally accounts for a large portion of annual sales. The cruise lines' initial responses have been seeking to allay fears in the marketplace. “Fear is now motivating people to make illogical travel and life decisions,” says Philadelphia-based travel advisor Lisa McLaren.  

Seeking to reassure nervous counselors and their customers, Royal Caribbean Cruises’ chairman and chief executive officer Richard Fain released a video to their travel partner. The industry’s senior executives are also scheduled to meet with U.S. Vice President Mike Pence to discuss best practices moving forward while many of the lines have also temporarily revised their cancellation policies.

Norwegian Cruise Line, for example, is delaying the due dates for final payments and relaxing rules about transferring reservations. Some of the most liberal policy changes, such as those at Viking Cruises, are letting passengers postpone trips up to 24 hours before departure, while Windstar Cruises also established a Travel Assurance Booking Policy that covers sailings through December 31, 2021.

The cruise lines are also supporting sales, especially for near-in sailings. Carlos Edery, the CEO of Luxury Cruise Connections based in Miami, Florida, says, “People are already starting to take advantage of all the incentives created by the cruise line industry to reactivate the market. The current booking incentives and cancellation policies are definitely working … the avid cruiser recognizes a good deal when they see it.”

The efforts are also laying the groundwork for the future. Chris Woronka of Deutsche Bank predicted after the virus peaked in the U.S., “cruise companies will ramp up marketing efforts to entice consumers to return to the seas, including material discounts and promotions that dampen pricing power for at least the next six to nine months.” Woronka anticipates that the efforts will gradually dissipate when confidence is restored and people begin to cruise again and book future cruises.

“The bigger concern is the longer-term psychological impact of the coronavirus on potential cruisers – especially the critical new-to-cruise customer,” says Robert Kwortnik, associate professor at Cornell University’s Hotel School. Despite his concerns that “2020 may be the most difficult year for leisure cruises in decades,” Kwortnik concludes, “Fortunately when events that affect the travel industry do occur, the impact tends to be moderate, as travelers have a short memory.”

It remains to be determined how effective the cruise lines efforts will be and what the impact of the most recent developments will be on both the short and long-term outlook for the industry.  

  

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.