Cruise Lines Prepare For The Future
Three weeks into its suspension of operations, the cruise industry had hoped to be planning for at least a partial return to service. Instead, with the coronavirus (COVID-19) pandemic still spreading, the suspension has been extended at least to mid-May. The cruise lines, like most of the travel industry, are being forced to prepare for a potentially far more reaching impact.
“To be clear, there remain many more questions than answers as it relates to the future of the cruise industry,” observed Deutsche Bank analyst Chris Woronka in his March 16 industry report.
With hopes of a brief pause in operations largely dashed, the cruise lines are instead expanding their efforts to manage a longer suspension of operations, while still working to get the last of their ships safely to port. They also now have to manage the emergence of the virus among some crew members aboard idled ships.
“We have never previously experienced a complete cessation of our cruising operations,” Carnival Corporation and plc reported in its recent filing, noting, “and as a consequence, our ability to be predictive regarding the impact of such a cessation on our brands and future prospects is uncertain.”
Initially, the cruise lines intended to keep the ships crewed and ready for a quick return to service. However, with the continued uncertainty, lines including Royal Caribbean International and Carnival Cruise Line have reportedly begun to send some crewmembers home. Carnival Corporation, recently said to investors, “We currently estimate the substantial majority of our fleet will be in prolonged ship layup,” indicating that it plans to reduce those ships to skeleton crews. Analyst Robin Farley at UBS forecast in her March 18 report to investors, “We would not be surprised to see some lines chose to lay up perhaps 10-20 percent of some fleets this year.”
“This situation truly is unprecedented, which means the response to it will have to be unprecedented as well,” says Robert Kwortnik, an associate professor at Cornell’s School of Hotel Administration. “The industry will need to approach recovery from four main areas: 1) financial; 2) operational; 3) structural; and 4) perceptual.”
The cruise lines responded to the financial shocks by slashing capital expenditure budgets, suspending scheduled renovation projects, drawing on their available credit lines, and in the case of Carnival Corporation completed equity and debt sales. They also offered generous incentives to encourage rebooking or future credits in place of cash refunds, with about half to three-quarters of passengers accepting the credits.
C. Patrick Scholes, an analyst at SunTrust Robinson Humphrey summed up the concerns saying it boils down to, “What is their cash burn and how many months can they survive in no to minimal revenues?” While estimates vary by line, the consensus is that the industry currently has about six to 12 months of liquidity to survive with no revenues.
The first step to the recovery, however, requires the mitigation of the virus and the loosening of the current stay at home and travel restrictions in place around the world. “I am seeing people who still want to cruise but can’t right now,” says travel agent Lisa McLaren of LISAFIT Travel based in the Philadelphia, Pennsylvania area. “They are eagerly awaiting the time when they will be able to,” she explains expecting, “amazing cruise deals will surface when the coronavirus finally calms down.”
In the interim, several cruise lines have turned to social media and the Internet as a means of maintaining interest with their loyal consumer base. Using videos and virtual tours, Viking has helped homebound travelers to tour popular destinations, while Carnival crewmembers have posted pictures from the ships, and Holland America is streaming a Lincoln Center musical performance from its onboard entertainment. A former Royal Caribbean International cruise director even created a virtual cruise with daily installments, all to remind travelers of the joys of cruise travel.
While everyone agrees that cruising has a very loyal consumer base, most observers expect that the cruise lines will have to take added steps, “to rebuild public confidence that they are safe,” says Andrew Coggins, a professor of management at the Lubin School of Business at Pace University. “They'll need to make it clear that the crew is COVID-19 free and that the ships have been thoroughly cleaned and disinfected.”
Several companies have already stepped forward promoting potential solutions including devices that can be added to the onboard HVAC systems to potentially reduce or neutralize airborne germs and bacteria, as well as enhanced entry and exit temperature monitoring systems. Systems such as these might be introduced in addition to the enhanced health screening before embarkation and onboard. “The upgraded health protocols we saw before cruises were suspended are surely going to stay in place, and likely toughened,” predicts Tanner Callais of the consumer website Cruzely.com.
When the cruise industry is finally able to resume operations it is likely to come in incremental steps helping to rebuild confidence. According to Kwortnik, the operational challenges will also be linked to the availability of air travel and “the significant challenges in re-crewing ships depending upon persistent travel restrictions, visa backlogs, and other travel limitations.”
At first, the lines may choose to keep the ships closer to home, to allay the fears of being stuck at sea. Tanner Callais says, “This could mean shorter cruises that limit their ports of call to a single country.” The lines might also choose to reduce occupancy to eliminate the images of crowds, stop self-service food offerings, and redouble their emphasis on hygiene and hand washing.
“The cruise industry will weather this outbreak,” concludes Rhonda Weaver, a travel agent based in Kent, Washington, “but it will take time and a lot of work.”
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.