Cruise industry has enough cash for 10 cruise-less months. But will passengers come back?

BY TAYLOR DOLVEN AND ROB WILE Miami Herald.
APRIL 17, 2020 06:00 AM, UPDATED APRIL 17, 2020 03:09 PM
Despite mass cancellations of voyages, Miami-based Carnival Corporation, Royal Caribbean Cruises Ltd. and Norwegian Cruise Line Holdings — the three largest cruise companies — have raised enough cash to last at least 10 cruise-less months, according to analysts. The fourth largest, MSC Cruises, is privately held.
But will people want to cruise again after thousands have been infected with COVID-19 after cruises and dozens have died?
That’s the million-dollar question, said Rockford Weitz, director of the Fletcher School Maritime Studies Program at Tufts University.
So far, the industry has disputed federal health officials’ repeated warnings that cruise ships are a more dangerous place for infectious disease spread than other environments. If companies want a shot at luring back customers, Weitz said, they better accept reality.
“The industry has to understand that expectations of their passengers have increased,” he said. “It’s going to be expected by the customer base that the industry is doing more than they did before to maintain a sanitary environment. That’s what the industry should be focusing on.”
Travel agents say they are seeing a steady stream of bookings for 2021, according to The Points Guy and industry publication Travel Weekly. Some of those are re-bookings using future credits offered by companies to passengers who saw their vacations canceled due to the pandemic.
Cruise companies were shut out of the federal coronavirus stimulus bill in late March because they claim U.S. tax exemption by incorporating overseas. Carnival Corp. is a Panamanian company, Royal Caribbean Cruises a Liberian company, and Norwegian Cruise Line a Bermudan company. All register their ships abroad, too.
Still, they have managed to buy time through capital markets, as well as through reducing expenses. Carnival has raised nearly $6 billion through new debt and equity positions. Among those purchasing stakes was Saudi Arabia’s Public Investment Fund. Royal Caribbean has also drawn on about $3.5 billion from existing credit instruments. Royal Caribbean laid off 26% of its U.S. staff Wednesday. Norwegian Cruise Line has made pay cuts.
None have published schedules for upcoming earnings calls or analyst updates. But in a call with media Thursday, Carnival Corp. CEO Arnold Donald said the company is prepared for a $0-revenue scenario through 2020.
“We’re reducing capital expenditures across our company and working hard to add liquidity,” he said. “We hope that will prove to be unnecessary, but we need to be prepared for the worst. We are prepared for the worst-case scenario.”
In a securities filing, Carnival Corp. said it has identified $1 billion in capital expenditure reductions, including reducing and eliminating sales and administration projects. Donald said Wednesday the company is working to repatriate crew members to get down to a skeleton crew on each ship to further reduce expenditures. The company has not announced any layoffs.
All three public cruise companies entered the crisis in strong financial health. Carnival Corp. reported a profit of $3 billion in 2019; Royal Caribbean reported a profit of $1.9 billion, and Norwegian Cruise Line reported a profit of $930.2 million.
Cruise stocks have stopped falling, for now, though all have taken a beating. Year to date, Carnival shares closed at $11.85 Thursday, down 79%. Royal Caribbean shares closed at $34.01, down 75%. And Norwegian shares closed at $11.35, down 81%.
Carnival Corp. operates more than 104 ships across its nine cruise brands: Carnival Cruise Line, Princess Cruises, Holland America Line, Seabourn, P&O Cruises (Australia), Costa Cruises, AIDA Cruises, P&O Cruises and Cunard. Royal Caribbean Cruises operates 51 ships across its four brands Royal Caribbean International, Celebrity Cruises, Silversea and Azamara. And Norwegian Cruise Line Holdings operates 27 ships across its three cruise brands Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. MSC Cruises operates 18 ships.
UBS analyst Robin Farley estimates the largest company, Carnival Corporation, has enough liquidity to last the longest without revenue, at around 14 months, followed by Royal Caribbean with enough for 11-12 months, and Norwegian Cruise Line with enough for 9-10 months.
Analysts at Deutsche Bank see a “U” shaped recovery for the industry, with normal business not returning until as late as 2023. The trough will depend on how cruisers respond to the threat from coronavirus.
“Whether things ultimately pan out this way depends in large part on consumers’ willingness (and financial ability) to return to the seas,” Deutsche Bank said in a note to clients. “We believe there is a sizeable continent of cruise enthusiasts/loyalists who will board as soon as they are able to do so again, but we also believe there will be many (particularly first time would-be cruisers) who may hesitate to get on a ship for a certain period.”
President Donald Trump included Carnival Corp. chairman Micky Arison, Royal Caribbean Cruises chairman Richard Fain, and Norwegian Cruise Line Holdings chairman Frank Del Rio on the White House task force for reopening the economy during the COVID-19 pandemic.
Despite a “no-sail order” in place from the U.S. Centers for Disease Control and Prevention through July 24, or whenever the COVID-19 pandemic is declared over, cruise companies are still saying they’ll return to cruising before then.
Weitz said cruising is going to need to look a whole lot different on the other side of COVID-19.
Just last week, Genting Cruise Lines — owner of luxury brand Crystal and Asia-centric brands Star and Dream — announced the company will introduce new protocols when allowed to operate again, including mandating face masks for all crew and disinfecting common areas with hospital-grade chemicals as often as every two hours.
Said Weitz, “the best thing the industry could do is spend the energy trying to make sure all of the different members are focusing on getting up to standards so that the industry as a whole doesn’t suffer. There’s going to be an opportunity for the industry to dramatically reduce the risk of infectious disease.”
But the largest cruise company, Carnival Corp. is resisting committing to any similar protocols just yet.
“We’re going to have to let society run its course in determining how it’s going to deal with a world going forward that has COVID in it for some time until a vaccine is developed,” said Donald on a press call Thursday. “We are going to be compliant. We are going to have medical experts decide what the course of action is.”
Meanwhile, outbreaks continue on cruise ships around the world among the crew who remain on board. The CDC and U.S. Coast Guard charged the industry with coming up with a plan this week to quell the infections on its ships, citing a strain on healthcare resources to care for crew needing hospitalization.
Donald declined to provide any details about the industry’s plan.
“We’re confident we have protocols in place that will satisfy the CDC,” he said. “We are not in any way burdening the nation with lots of people being sent to shore needing to be hospitalized. I don’t want to get into the details.”