Coronavirus: is this the end of the line for cruise ships?
Operators aim to rebuild trust with health measures but still face calls to improve conditions for their crews
It has survived norovirus, Sars and Mers, as well as regular outbreaks of gastroenteritis and legionnaires disease. But coronavirus has dealt the cruise ship industry what looks like a crippling blow.
The 338 ships that make up the industry’s fleet are docked. Carnival, the world’s largest cruise company, is haemorrhaging $1bn a month to maintain its fleet. Governments have issued “no sail” edicts and the majority of the 32m passengers that the Cruise Lines International Association projected would sail this year are stuck at home.
The halt on operations is due to last until at least August with ghostly ships marooned in harbours in what is known as “warm lay-up”, where systems are kept running to make sure that none seize up.
The industry — which says bookings for 2021 are almost at the same level as they were this time last year — is now looking to rebuild public trust with new health and sanitation measures. But Martin Luen, a banker specialising in travel at Baird, an investment bank, warns that it will be a slow return to growth: “Sectors at the scene of the car crash are rarely the first ones to recover.”
Travel and tourism businesses are under immense pressure ahead of the crucial summer season in the northern hemisphere. And even though the cruise ship companies have an unusually loyal customer base, eager to travel again, the risks of catching coronavirus and the added impact of social distancing rules at sea place an unusual burden on operators.
In a stark example of the difficulties the industry faces, more than 60,000 crew members remain stranded aboard ships waiting to find out if they will be repatriated to their home countries. The US Centers for Disease Control and Prevention has ruled that it will only allow cruise liner employees to disembark if the companies guarantee to charter private flights to return them home and that executives sign legal assurances that the agency’s health protocols will be followed.
Of the three largest cruise companies, Carnival says it has 32,000 crew awaiting repatriation and Royal Caribbean says it has returned 26,000 of its 77,000 shipboard employees and is “hopeful that all remaining crew members will be home by the end of June”. Norwegian Cruise Lines did not respond. Their efforts, they say, have been hampered by port closures and global travel restrictions that threaten to kill this summer’s holiday season.
One Royal Caribbean employee, who asked not to be identified, says that, until most of the crew from his ship were returned home in mid-April, 1,600 crew were at sea for three weeks without guests but under quarantine after several people tested positive for Covid-19. Although they were moved to the guest cabins, he says that if they left their rooms they feared being “fired”.
Royal Caribbean says: “Our foremost priority is getting our crew members home safely and we are investing heavily in this massive endeavour.”
An outbreak on board Carnival’s Diamond Princess ship in February was the first sign that the industry had a problem. Japanese authorities quarantined it off the coast of Yokohama. According to Johns Hopkins University data, 13 of the 712 people on board who were infected died. At the time it made up the single biggest cluster of cases outside China.
Its sister ship the Grand Princess was later held off Oakland, California, with 78 passengers testing positive for the virus, while other ships, such as the Holland America Line’s Westerdam, were forced to bounce between ports as country after country refused to let potentially infected ships reach land.
The clear impression given by the media was that these liners — with thousands of people sharing relatively small amounts of common space — were like “floating Petri dishes”.
Carnival, Royal Caribbean and Norwegian, whose ships make up 70 per cent of the industry’s ships, now face multiple court cases from passengers who lost relatives and crew who became ill. Norwegian, which did not respond to a request for comment, is being sued separately by a group of investors who claim that the cruise company lied about the severity of the disease in order to shore up bookings. Carnival is also facing investigations in the US and Australia for allowing infected passengers to disembark.
Yet, according to data from the Miami Herald newspaper, which has been tracking the industry, just 82 people are thought to have died from coronavirus caught on cruise ships. As the total worldwide deaths from coronavirus near 400,000, cruise executives say the industry has been unfairly tarnished.
“This caught everyone by surprise and there was limited scientific data and guidelines to work off but yet you are made to be the scapegoat,” says a senior executive at one of the biggest cruise companies. “It has been difficult to move away from situations that are very media sexy.”
Ben Cordwell, a travel and tourism analyst at GlobalData, says announcements by health authorities such as the CDC that blame the cruise industry for the virus’s spread have been “disastrous” for its future. “We will still see cruises, the whole industry is not going to disappear,” he says. “[But] the amount of negative publicity it has received is going to be hard to shrug off.”
The 2020s were meant to be a boom decade for cruises. Nineteen new ships worth more than $9bn were due to launch this year alone. One, the Scarlet Lady, which cost €600m to build, was the first of a new line run by Virgin — Richard Branson’s maiden foray into the cruise ship market.
Ships are also getting bigger — the largest in the world currently is Royal Caribbean’s 228,000-tonne Symphony of the Seas, five times the size of the Titanic — and more exciting, with a glow in the dark adventure park on board as well as a 10-storey water slide. Carnival’s Mardi Gras, whose maiden voyage had been due in August, has six themed entertainment areas and the world’s first rollercoaster at sea.
Ports around the world are being developed to accommodate cruise ships and the passengers that flood off them. Global Port Holdings, reported a 15 per cent increase in cruise port revenues in 2019, and is investing in two new Caribbean ports. In contrast Venice, which saw nearly 170,000 cruise passengers travel to the city last June, is looking to reduce visits from the biggest ships.
But despite adding an estimated $150bn to the global economy, according to the CLIA, only a relatively small number of travellers choose to cruise — under 3 per cent the world’s 1.1bn tourists last year.
Instead of raking in record profits — the three main operators made almost $6bn in profits off revenues of $38bn in 2019 — the industry is now scrabbling for cash. In May, Norwegian used two of its cruise ships and two islands as collateral for part of a $2.4bn fundraising comprising equity, loans and private investments. It said that this could see it through 18 months without cruises.
Its much larger rival Carnival raised $6.4bn through equity and debt in April, including a $430m stake from Saudi Arabia’s Public Investment Fund, but still plans to lay off staff and cut pay. Also in May, Royal Caribbean raised $3.3bn secured against 28 vessels and “material intellectual property”, shortly after S&P and Moody’s had both downgraded the company’s credit rating to junk.
The industry not only faces the maintenance costs of keeping ships in good shape for when holidays can restart but also significant cash outflows as customers claim refunds for cancelled trips. Norwegian said that as of May 11 just over half of the customers with cancelled trips had requested cash refunds instead of vouchers offering 125 per cent of their original holiday value. At the end of March it had $1.8bn of customer deposits on its books.
And unlike peers in the hotel and restaurant sectors, cruise lines — which are mostly registered in tax havens such as Panama and the Bahamas — are ineligible for the US government’s $3tn aid programme.
The CLIA has also approached the EU for help but Mr Cordwell says that authorities are unlikely to be sympathetic: “[Their registration in tax havens] gives the governments an excuse not to include them in stimulus and avoid risk of a backlash from the public.”
The industry is no stranger to corporate controversy. Campaigners have long argued that cruise ships litter the environment with high levels of noxious discharge and damage habitats. Others condemn their labour practices and their use of so-called “flags of convenience” to register in domains with more lenient legal restrictions.
“Covid has thrust the industry under the international spotlight and people are looking very hard at how this industry has been acting for decades,” says Kendra Ulrich, shipping campaigns director for the environmental group Stand.earth. “This is the latest example of a morally bankrupt business culture and one that they are going to have to make public and substantive changes to, to regain public trust.”
In 2016, Carnival was found guilty by a Miami court on seven counts of environmental negligence including dumping oil, sewage and dirty water at sea. It was its third conviction for the same offence since 1998.
Both Royal Caribbean and Norwegian have also been fined for their environmental records.
Ms Ulrich says that under the “flags of convenience” model, a term the industry views as pejorative, cruise companies can adopt less stringent labour standards as they do not come under US or European employment law.
An investigation by Columbia Journalism School in 2016 found that on some Carnival ships crew worked 70 hour weeks on nine-month contracts with no days off or paid leave. The International Transport Workers’ Federation said that in the first two weeks of May, four cruise ship crew members had committed suicide on board.
Carnival says its “top priorities are [health and safety] compliance, environmental protection and the health and safety of our guests and crew”.
Robert Kwortnik, associate professor at Cornell University’s School of Hotel Administration, says that registering in tax havens keeps costs down: “The operational model is more efficient because you can save costs in terms of labour. Will we see a wholesale change in that model? I don’t know if it will happen immediately, but it could be better for the industry.”
To restore public trust, cruise lines have focused their attention on tighter health checks and increased sanitation.
“By February we had a completely enhanced medical protocol. Full medical screening, oxygen saturation checks, 28-day medical history [for passengers], and denied boarding to anyone with even mild flu symptoms,” says Euan Sutherland, chief executive of the insurance company Saga, which runs two cruise ships. Other cruise companies have begun to announce similar measures. The industry is regulated by numerous supranational bodies including the International Maritime Organization and the World Health Organisation but protocols and decisions over when to sail again are down to the companies themselves.
Genting, which operates three cruise lines out of Asia, was the first to officially announce new measures. It has promised that 100 per cent filtered air from outside the ship will be supplied to each cabin and that isolation wards will be added to on board medical centres.
But Annelies Wilder-Smith, professor of emerging infectious diseases at the London School of Hygiene and Tropical Medicine, says that in order to prevent future outbreaks of coronavirus cruise liners would have to operate at 50 per cent capacity at most.
She also suggests pre-departure health screenings, limiting onshore day trips and splitting the timetable for activities so that only half the number of passengers would take part at a time. “Logistically it is a nightmare but it can be done,” she says.
Cruise operators are quick to point out that the industry has one of the highest repurchase rates of any sector, with 85 per cent who take a cruise booking again. A reader survey from Cruise Addict magazine found that 88 per cent would not be deterred from cruising because of coronavirus and more than half had already booked a new cruise since the pandemic began.
But newcomers will be harder to persuade. Stewart Chiron, an independent industry consultant, says cruise ships will have to start sailing again before potential customers believe that cruise holidays are safe.
“The industry needs to convince customers that they are safe, will not risk infection with Covid-19, or be quarantined on a ship,” says Jamie Rollo, an analyst at Morgan Stanley. “When sailing does resume, it might take only a small outbreak on one ship to cause global operations to be suspended again, so the industry needs to get this right first time.”