The industry has few friends and its main customers, the elderly, may shun it for good
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WHEN THE ZAANDAM, a cruise ship operated by Holland America Line, left Buenos Aires on March 7th, its passengers were promised 31 nights of “elegant and comfortable” luxury. They are now approaching Florida, and their holiday has been anything but elegant, comfortable or luxurious. More than 1,000 people have been confined to their cabins since March 22nd. As of March 30th at least 193 had fallen ill with flu-like symptoms, several have tested positive for covid-19 and four have died. Fearing contagion, the ports of call have kept her out; and so the Zaandam has been stuck at sea. Even its final destination, Fort Lauderdale, may not accept the ship. “We do not want to see people dumped in southern Florida,” Ron DeSantis, Florida’s governor, fumed on Fox News on March 30th.
For its high-paying customers to be discussed as if they were toxic waste is bad enough. But for the sea-cruise business, the Zaandam’s woes are a sign of much larger troubles. Once sold as the safe and easy way to see the world, cruise ships have come to be seen as diseased-infested prison hulks that trap holidaymakers at sea. Even more than airlines, which have almost completely shut down across the world as demand for air travel collapses, the cruise business may have most to lose from the pandemic.
The industry’s reputation was shipwrecked from the pandemic’s early days, when a number of liners suffered covid-19 outbreaks. Several operated by Carnival—the world’s largest cruise company, which owns Holland America Line and the Zaandam—have become infamous. On its Diamond Princess, quarantined in a Japanese port in February, the tally eventually reached at least 712 cases and ten deaths. Its sister ship, the Grand Princess, which has been in quarantine since March 9th in California, has reported dozens more.
Richard Clarke of Bernstein, a research firm, points out that the industry’s reputation has always had a problem with norovirus, a less serious disease which causes vomiting and diarrhoea, often reported by the press on cruise ships. The covid-19 outbreaks cement perceptions that if holidaymakers “go on a cruise they could get ill and trapped at sea”. It does not help that so many cruisers are elderly, the group most vulnerable to covid-19. According to the Cruise Lines International Association, a trade body, a third of cruisers globally are aged over 60.
Operating cruise ships is hardly a niche business. Global revenues in 2018 reached nearly $50bn. But the pandemic has already scuttled it. The world’s three largest cruise firms—Carnival, Royal Caribbean and Norwegian—which account for nearly 80% of global capacity, have suspended all voyages and have laid up their ships. Initially cruise bosses thought the hiatus would last just a month or so. But several of Carnival’s brands, including Cunard, a posh British firm, have already extended their operational pause.
Their hands are being forced by governments. American and British officials have issued unprecedented travel advisories suggesting that the over-70s—the industry’s core market—should not go cruising for health reasons. Many countries no longer welcome cruise ships. Canada has banned large cruise ships from docking at its ports until July 1st, a policy likely to be copied by other countries in the weeks ahead as covid-19 spreads. Even the shut-down has helped to spread the disease. Two of Mauritius’s first four covid-19 cases were imported by crew returning home from cruise ships.
The pandemic has come at a particularly bad time for the industry. The first three months of the year are known as the “wave season” for the industry—the quarter during which it sells most of its holidays. And 2020 had been expected to break records. The three big firms now have virtually no revenue coming in. Their share prices are down by 70-80% since the start of the year (see chart), compared with declines of around 60% for airlines and 30% for the American stockmarket overall. The shutdown has battered the economies of ports reliant on tourist traffic. Worst-hit is the Mexican island of Cozumel. It has seen visitors completely dry up; in normal times, it generates 70% of its GDP from passing cruise ships.
Even so, the big three will survive the coming cash crunch. They all have relatively strong balance-sheets. Analysts think that, even with no revenue, they have enough cash to survive without issuing any new debt or shares for at least six months. On March 31st it emerged that Carnival plans to raise $6bn from issuing new shares and bonds in case it needs to withstand a much longer shut down. In contrast, American Airlines could run out of cash in just three to six months, reckons George Ferguson of Bloomberg Intelligence, another research firm.
Investors still have a lot of reasons to be wary of the cruise lines, however. The crisis has exposed their lack of political clout in Washington. The industry was excluded from America’s $2trn fiscal stimulus, approved by Congress last week, which could impede its ability to withstand a much longer shut-down. To be eligible for relief, a company must be “created or organised in the United States” and “have significant operations in and a majority of its employees based in the United States”. All three cruise firms, however, are incorporated offshore to minimise the taxes they pay, and their crews come mainly from developing countries to cut costs—policies that have long irked American politicians.
A more fundamental worry is that the numbers holidaying at sea may simply never bounce back when the industry weighs anchor again. Airlines and hotels will always be needed by business travellers; holidaymakers have options other than cruising. Worse, cruising seems not to appeal to the young. Surveys suggest millennials want more adventurous holidays, and are more concerned about sustainability, overtourism and workers’ rights. These are all areas in which cruise lines have been very publicly criticised in recent years. The immediate problem, however, will be how to lure old folk back on board, now that the spread of the disease is indelibly linked in the public mind to cruise ships. For next year’s holidays, expect many silver cruisers to rediscover their land legs.■
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