COVID-19 has taken the wind from the sails of the once-booming cruise industry

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For many years, the cruise industry was booming, riding the crest of a wave that culminated in more than 29.7 million passengers in 2019. In 2020, it was forecast that more than 32 million passengers would go cruising, but then along came COVID-19 to take the wind from the industry’s sails.

The COVID-19 pandemic has completely devastated the cruise industry. At the beginning of the outbreak, cruise ships were prevented from docking in many ports, creating contagion hotspots that the press dubbed ‘floating petri dishes’ and leaving tens of thousands of passengers and staff stranded. Since then, border closures, social distancing and a lack of foreign travel have compounded the misery of this $150 billion industry

We look at the impact of the perfect storm that has hit the cruise industry and discuss whether it can ever recover from this terrible year.

Plain Sailing

Over the last decade, there has been a huge increase in the number of passengers booking a cruise. In 2009, there were 17.8 million ocean cruise passengers. That number rose year-on-year, reaching 19.1 million in 2010, 20.5 million in 2011 and 20.9 million in 2012. By 2019, passenger numbers rose to nearly 30 million.

The result of this surging demand is an industry with more than 50 cruise lines and 270 ships. The three biggest cruise lines, Carnival Corporation & PLC, Royal Caribbean Group, and Norwegian Cruise Line, generated combined revenues of $34.2 billion in 2018. However, perhaps even more indicative of the health of the industry was their share price, which at the beginning of 2020 was $134.55, $58.79 and $51.35 respectively.     

How has COVID Affected the Cruise Industry?

Up until very recently, cruises were the fastest growing sector of the travel industry, with demand rising by 20.5% over the last five years alone. However, in early 2020, that all began to unravel. On 3 February, long before the first UK lockdown, an outbreak of COVID-19 was reported on a British-registered cruise ship called the Diamond Princess.   

Over the next month, 700 people onboard the cruise ship tested positive for the coronavirus and nine died. That massive outbreak, along with numerous over vessels reporting large numbers of positive cases, caused huge reputational damage, and the industry has been negatively associated with pandemic ever since.

Since the first UK-wide lockdown in March, the revenues of cruise lines have fallen off the edge of a cliff. As you can see from the chart below, the three largest operators have all experienced a year-on-year fall in revenue of more than 70%.

Carnival Cruises earnings report for Q2 2020 shows just how hard the largest operator in the cruise line industry has been hit. It reported a net loss of $4 billion for the period and an 85% decline in revenues when compared with Q2 2019. Reports also show that the company is burning through $650 million every month that its ships are docked, prompting it to sell off or scrap six ships from its fleet as a cost cutting measure.   

The rapidly changing fortunes of the cruise line industry was also reflected in the share price of the three largest cruise organisations, which had fallen to $30.30, $10.50 and $12.60 respectively by 1 April 2020. Cruise lines have also had to pay out huge amounts in cancellations and meet the costs associated with maintaining their immense ships when they’re not sailing.

The impact of the floundering cruise line industry has also been felt more widely. In Europe alone, it’s estimated that more than 200,000 jobs that depend directly or indirectly on the industry have been lost. There has also been a knock-on effect on many of the countries and island nations that rely heavily on the tourists that the cruise lines bring to their shores. For example, cruise line customers contribute more than $2 billion to the economies of the Caribbean Islands. 

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Source: companydebt.com/

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