Cruise lines “hemorrhaging cash” as COVID-19 pandemic grips world
Not only is the novel coronavirus outbreak going to result in a significant short-term impact, with routes put on hold, but this will also be felt in the long term, owing to “booking windows, and a lot of these different things that have to happen to successfully get a high yielding sailing out.”
High fixed costs are one reason the industry is facing such a tough time. Owing to short-term contracts, even items that are considered variables, like food, are still seemingly fixed owing to contractual obligations. All of this means that “there’s not a lot of flexibility that the cruise lines have in terms of minimising that short-term impact” further highlighting the significant impact the cruise ship industry will experience as a result of Coronavirus.
On top of this, cruises have to pay port charges while their ships are out of service. What charges this would involve are unclear, as “historically speaking, they haven’t had to lay up ships as such, so it’s a little bit of uncharted territory.” However, the cruise ship companies
impacted by Coronavirus will “likely get a good rate from the terminal because the terminals will want to keep their business coming back in the long run.”
When cruises will be able to start operating again was also discussed. Because they’re “haemorrhaging cash”, companies will be looking for the first possible opportunity. But “you need to do it in a way that’s not going to make you lose money or you’re going to endanger having another outbreak on board.” Moreover, companies will not want to “[alienate their] loyal guests” by dropping prices too low.
There is likely to be a concentration of activity in the Caribbean when operations resume, as companies are “going to put their asset, from a selfish standpoint, where they believe they can drive the highest yield”. This could, however, put pressure on capacity. “Obviously, not everything will fit into the Caribbean, so there’ll be a domino effect of ships that will then be redeployed later on in Europe or, you name it, West Coast of the United States or somewhere else, trying to fill that gap.”
Other aspects of the industry’s outlook were also covered, for instance how dependent the cruise industry is on operational airlines, and the pandemic’s consequences for CAPEX.
To access all the human insights from Third Bridge Forum’s Carnival Cruise Lines – Cruise Industry Outlook Interview, click here to view the full transcript.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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