- The coronavirus has brought the cruise industry to a standstill and has already wallopped stock prices.
- Analysts explained how these companies recovered from previous pandemics and disasters, and what they’ll need this time around.
- They’re optimistic demand will return – eventually – but said some companies may be better positioned to come back than others.
- Visit Business Insider’s homepage for more stories.
Cruise ship companies have weathered serious storms in recent years, including fires, environmental disasters, and a ship running aground in a disaster that killed 32.
None have brought the industry to a standstill like the coronavirus pandemic, and the bottom line impact has already been jarring.
Carnival, the biggest of the companies by market capitalization, has seen its stock plummet more than 70% in the last year. The company is now trying to raise $3 billion and borrow another $3 billion, Bloomberg reported Tuesday. Last week, Carnival’s CEO said in a leaked video that he would not slash jobs or compensation through June as other lines including Norwegian Cruise Line look to recoup costs through immediate measures like cutting employee pay by 20%.
The travel and leisure industry is coping with empty flights, shuttered hotels, and thousands of furloughed staff. But unlike airlines and hotels, cruise companies won’t get any relief from the US government, at least in the most recent stimulus package. As cruise ships sit empty in ports or sail without passengers, analysts explained what the companies will need to recover, including a pickup in demand, indirect help from the stimulus package, and the possibility of government bailouts outside of the US.
“Cruise lines, as evidenced by the stocks, are in a world of hurt right now without a clear light at the end of the tunnel,” Patrick Scholes, a SunTrust Robinson Humphrey analyst, told Business Insider.
Scholes said that with ships halted, the public companies could pay their financial obligations for the next six to nine months.
“Under normal circumstances, that’s not the end of the world; here the multi-trillion question is when do ships start sailing again?”
“Just buying time”
The three publicly-traded cruise companies – Carnival, Norwegian, and Royal Caribbean – together represent more than a $60 billion market cap. They’re important for local economies that depend on shipbuilding and tourism, but because they’re based outside of the US, they employ many international workers, and they didn’t get a slice of the stimulus package passed last week.
“It would be very tough for politicians to defend the cruise industry getting a potential bailout when they don’t pay US corporate taxes,” said Stifel Financial analyst Steve Wieczynski in a note last week.
The cruise industry could still benefit indirectly from the stimulus, Scholes said. Travel agencies, many of which qualify for small business assistance from the government, sell over two-thirds of cruises, per research consultancy Phocuswright. In the coming months, Scholes said those agencies also could persuade people planning to cancel their cruises to rebook instead, which would help the cruise companies retain customers.
And while cruise lines aren’t considered essential businesses for the US, they could benefit from other governments looking to stimulate local economies. Germany and Italy are the biggest shipbuilding countries, Scholes said,
“It’s possible that Italian and German governments might be more agreeable to provide a financial lifeline,” he said. “It’s not like they’ll give them outright millions, but it would be very low- or no-interest loans that would get paid back over time… just buying time in hopes that you’ll return to a normal environment.”
“A pretty big washout in 2020”
Cruise ship customers can be a particularly loyal bunch, with hundreds boarding cruises well after the coronavirus had spread beyond Asia. Demand for cruises will come back, analysts agreed – but it’s impossible to know when both companies and consumers will be ready to sail.
“If you look to the past crises, companies have survived them all – and there were some really bad ones,” Morningstar analyst Jaime Katz told Business Insider. “They pared back marketing spend and they let the demand come back naturally over time. It takes a few years to get to that same demand level with respect to how people feel about your brand.”
Katz forecasts a “big hit” to pricing this year, with demand next year coming back halfway compared to her original projections for 2021.
“Theoretically we could have a pretty big washout in 2020 for the cruise industry and a return to this normalized environment,” she said. “They’ve made it through these other episodes before so it may take them some time to get this demand to where they want it to be, but there are avid cruisers that love the experience.”
Katz looked at past pandemics, including H1N1, Ebola, and SARS, to understand how cruise ships might rebound this time.
“When we looked at some of these past events, it struck us that what was more predictive of yield the next year was whether or not we were in a recession,” she said.
Countries’ ability to contain the virus will set the stage for understanding which cruise companies could be better positioned for a recovery. Katz said Carnival faces more geographic-specific challenges than Royal Caribbean and Norwegian’s more global brands. Carnival’s Costa Cruises line, for example, caters to Italians, and could be seriously damaged by Italy’s ongoing struggle to confront the coronavirus.
Globally, both demand and operations depend on an end to the pandemic, and particularly on a vaccine, SunTrust’s Scholes said. He forecasts other areas of leisure travel to come back before cruise ships because consumers may be skittish about being packed on a ship with thousands of other passengers.
“The cruise lines are optimistic that they’re going again by early summer. I think that’s very optimistic,” Scholes said.
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