Cruise ship sector urgently seeks safe harbour to shelter from virus storm
As sailings are pulled, experts fear the crisis may sink the industry.
The $150bn (£120bn) a year global cruise ship industry continues to take a hammering from the coronavirus outbreak, with more companies pulling sailings, sending share prices diving. The cancellations came as the World Travel and Tourism Council warned that fallout from Covid-19 could see international travel shrink by a quarter this year, with the loss of up to 50m jobs in the sector.
The council called coronavirus “a significant threat to the industry as a whole, to those employed within it, and those wishing to continue travelling”. It predicted the loss of up to 14pc of jobs in the sector, which accounts for 10pc of global GDP and employment.
One of the hardest hit was Carnival Cruise Lines. Its shares fell again yesterday, dropping 10pc as investors continued to react to its decision on Thursday to cancel some sailings for two months. It is now valued at £8.2bn, £10bn less than the company’s market capitalisation a fortnight ago before coronavirus fears took hold in the West. Carnival is the world’s largest cruise operator, with about 100 ships representing about a third of the major global fleet and accommodating almost half the world’s 30m cruise passengers a year. It owns both ships on which thousands of passengers were quarantined for lengthy periods in Yokohama and San Francisco following outbreaks of the virus.
Saga, the holiday company that specialises in vacations for over-50s, also said yesterday it has suspended its cruise operations until May 1 because of coronavirus. Its shares initially fell 5pc as it warned on profits because of the cancellations, which came after the UK and other governments advised people aged 70 and over and those with pre-existing health conditions against going on cruises.
Saga said customers due to travel in the next six weeks will be offered a refund or credit for future sailings.
The cancellations will reduce its cruise operations profits by between £10m and £15m. Although conditions remain uncertain, Saga said it has “significant available liquidity” to ride out the pandemic. This includes £100m undrawn revolving credit facility, £33m of cash and the cash generation of its insurance business.
Anglo-german holiday company Tui is also under pressure. Some of its Asia cruises had been cancelled because of port closures in Malaysia, Sri Lanka and Goa, with further restrictions in Vietnam. Its shares fell more than 6pc yesterday.
Across the cruise sector, which employs 1.2m people, according to the Cruise Lines International Association, a series of other companies docked ships and cancelled plans as ships face being denied entry to some ports.
‘Can they last three or four months? Yes. But if worries from the outbreak last a couple of years, then no’
Norwegian and Royal Caribbean, the two major operators after Carnival, have ordered guests aged 70 and over to provide a certificate showing they are fit to travel before boarding. Screening is also being put in place that could mean passengers are denied boarding if they show a temperature or have an underlying condition that could affect their immune system.
Combined, the three big players in the industry have seen almost $60bn (£49bn) wiped off their collective market value over the past two months.
The Viking, Celestial and Globus cruise groups have similarly cancelled sailings, while Virgin Voyages has postponed its debut season.
Alex Brignall, an analyst at Redburn, warns that the industry faces a “moment of unprecedented uncertainty. Whilst Covid-19 itself is bad enough, the greater unknown is the impact from political and media reaction”. He estimates the industry has enough liquidity to cope with a four to five-month shutdown.
However, there are concerns that the impact could last far longer. Worries are exacerbated by a view held by some that cruise ships are “floating Petri dishes” where infections can spread rapidly.
Brignall cites Carnival’s notorious “poop cruise” in 2013 when passengers were forced to go to the toilet in bags after a fire on board one of its ships caused loss of power and propulsion. Raw sewage began to back up into passenger decks. The event received major negative media coverage. How quickly passengers return to cruise ships in the face of the uncertainty about coronavirus remains to be seen.
Taking ships out of commission will run up huge costs for operators, according to Stuart Gordon, cruise industry analyst at Berenberg. “There are significant fixed costs in the cruise industry that are very hard to get down,” he says. “If you have a ship with about 3,000 berths, then each berth costs about $100 to $120 per day as an operating cost. These companies can survive for a while as they have reasonable liquidity. Can they last three or four months? Yes. But if worries from the outbreak last a couple of years, then the answer is no.”
The impact on profits will be large, however. According to Berenberg, each ship operating generates $1m a day in underlying profits.
Analysts at UBS predict more cruise companies taking action, which will be exacerbated by what the bank’s analysts described as “generous cruise deferral policies”, meaning customers are likely to delay trips until fears ease, further lowering demand.