The cruise business could be one of the victims of the coronavirus

The cruise business could be one of the victims of the coronavirus
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 stock market 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 organized 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 minimize 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 travelers; 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 criticized 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.