Landlubbers who wrote this industry off for dead just don't get it.
Cruise lines have navigated their share of hardships over the last several decades, but now they face what some see as a true existential threat from a mix of canceled business, heightened regulations, lawsuits and cleanup costs amid the pandemic.
Fortunately for them, it seems hard-core cruise goers can't wait to climb back aboard. Their loyalty should eventually resuscitate battered shares of major operators Carnival, Royal Caribbean Cruises and Norwegian Cruise Line -- as long as they can stay afloat financially in the meantime.
Research by the Cruise Lines International Association (CLIA) shows the number of cruise passengers has grown each year for the past decade, with a cumulative 30% growth in passengers over the past five years. This growth has come even in the wake of recent disasters like the 2012 capsizing of the Costa Concordia, which killed 32 people, a 2013 engine room fire-turned-sewage flood and frequent instances of mass illness onboard.
While that streak will be broken in 2020, cruise goers are like Moby-Dick's Ishmael: drawn to the sea, no matter how it throws them. Analysts estimate about 30% are repeat customers. Carnival says the majority of its guests are, with many taking at least one cruise every year and some taking two or more. As with casino patrons, status in loyalty programs is a big draw, earning repeat cruisers anything from a lapel pin to a private dinner with their ship's captain.
The market has been expanding, too. UBS analyst Robin Farley notes that, while cruises are historically known to attract an older cohort, millennials are actually the fastest-growing segment of the market in absolute and percentage terms. Indeed, from high-end to budget, cat-themed to gothic, it seems there is now a cruise for literally anyone.
Clearly, the coronavirus has put the industry into a holding pattern without a definitive end and eroded some trust as well.
A Wall Street Journal investigation found cruise ship operators initially played a role in Covid-19's spread, sailing on despite passengers and crew showing symptoms of the disease. Regulations as a result of the disease's spread have since sidelined new voyages.
The Centers for Disease Control and Prevention issued a no sail order for large cruise ships that will stand until at least late July. CLIA has issued a voluntary suspension of sailings from U.S. ports until September 15, and Carnival has now canceled all North American cruises through September 30.
When ships set sail again, the experience could look quite different. Packed bars, shows, pools and onboard buffets will have to wait until there is minimal risk of infectious disease.
Despite that, cruise loyalists are moving forward with plans for their next journey, even while ships remain docked. Carnival recently reported growing demand for cruises due to set sail next year, and not just from people trying to redeem the credits they got for canceled cruises earlier this year.
In a six-week stretch ending May 31, about two-thirds of Carnival's 2021 bookings were from people without those credits, the company said. Royal Caribbean recently said it was also seeing acceleration in 2021 bookings, exceeding pre-pandemic levels.
Indeed, 85% of cruise travelers in a May survey by UBS said they are likely to cruise again, 62% said they will cruise just as often in the future and more than half said they expect to cruise again in the next 18 months. A June survey from Cruise Critic, a travel website, shows 32% of its readers are already looking to book their next cruise.
Cruise executives say they expect re-entry to be staged a few ships at a time rather than all at once. Analysts say an easy start will be shorter trips to private islands, which alleviate cross-border regulation risks and allow companies to control who comes and goes, all while enabling enhanced social distancing once onshore.
Carnival owns two private islands and Royal Caribbean recently made a major splash in the industry, investing $250 million to turn a Bahamian beach into a theme park featuring the tallest waterslide in North America and the largest wave pool in the Caribbean.
Regulatory and legal risks do muddy the waters. Tensions between cruise lines and the CDC have been mounting, according to people familiar with the matter. Meanwhile lawmakers are investigating the role of cruise operators in spreading the coronavirus, while plaintiff's attorneys are reportedly pursuing potential class-action class action claims over alleged consumer and shareholder fraud, as well as potential employment law violations.
Liquidity also becomes more of a concern the longer cruise ships are docked. But Carnival said it ended its fiscal second quarter with $7.6 billion in available liquidity, which at its average monthly burn rate would support operations for about a year without service.
Royal Caribbean said last month it has roughly $5.2 billion in total liquidity -- enough to get through what Chief Financial Officer Jason Liberty describes as a "prolonged out-of-service period," plus some leftover cash to ready itself for service.
Shares of all three major cruise lines plunged by more than 80% from mid-January to mid-March. While they have recovered some of those losses, shares of all three major cruise corporations are down well over 50% from pre-Covid levels.
U.S. regulators have long been concerned about the cruise industry's issues managing health outbreaks on board. Now, Chairman of the House Committee on Transportation and Infrastructure Peter DeFazio says he is concerned Carnival in particular "is still trying to sell this cruise line fantasy," ignoring future threats to public health.
Call it what you will, but it is the industry's most loyal customers who are fantasizing about their next stroll on the lido deck.
