Matthew Mignella- Widespread outbreaks of viruses on cruise ships are not a new phenomenon, nor are they a surprising one. Cruise ships pose a unique combination of health concerns because people are brought together from different geographic locations in crowded and semi-enclosed environments. Furthermore, port visits and excursions can expose travelers to illness and facilitate its spread onboard to crew members and fellow passengers.
Since March 1st, there have been 102 outbreaks of COVID-19 or COVID-like illnesses on 124 different cruise ships, which accounted for 3,689 cases and 41 deaths. These outbreaks impacted more than 82% of cruise ships sailing within U.S. jurisdiction. Although operations have endured overseas at reduced capacity, outbreaks of COVID-19 throughout the cruise industry have remained continual.
On March 13th, in response to the arrival of COVID-19 in the United States, Cruise Line International Association (CLIA) and its members announced a voluntary suspension of cruise ship operations for 30 days. A few notable CLIA members include Carnival Cruise Line, Disney Cruise Line, Norwegian Cruise Line, Celebrity Cruises, and Royal Caribbean. Although CLIA members comprise about 95% of the cruise industry, many non-members did not adopt a voluntary suspension of operations. Accordingly, the CDC adopted a “no-sail” order on March 14th that applied to those cruise ship operators that did not voluntarily suspend operations. The hallmark of the order was that cruise ship operators could not embark any new passengers or crew without approval by USCG or other federal authorities. Prior to its expiration, the “no-sail” order was modified and extended for 100 days from April 15th to July 24th. As anticipated, the “no-sail” order was extended again through September 30th.
Although optimism existed prior to the September 30th expiration date that a plan would be in place to resume sailing, CLIA extended its voluntary suspension of cruise ship operations through October 31st. In response, CDC Director, Dr. Robert Redfield, attempted to extend the “no-sail” order through February 2021. Dr. Redfield was overruled by Vice President Mike Pence and the “no-sail” order was subsequently extended through October 31st to coincide with the CLIA’s voluntary suspension of cruise ship operations.
It is likely that the “no-sail” order will be extended at least through November, but just because cruise ships might be able to sail as of November 1st doesn’t mean that they will. For example, Norwegian Cruise Line has already cancelled all cruises from U.S. ports through November and Carnival Cruise Line has cancelled voyages from U.S. ports into spring 2021.
With the heightened risk of virus transmission on cruise ships and continued uncertainty surrounding sailing, one must wonder how much longer the cruise industry can survive. It is crucial to remember that most cruise ship operators are registered in foreign countries to avoid the corporate tax, avoid paying U.S. federal income tax on its profits, and to operate under relaxed safety standards. Given their status as foreign corporations, major cruise lines were excluded from the stimulus bill signed by President Donald J. Trump on March 27th.
Aside from taking out millions of dollars in loans, some cruise lines have been forced to take more drastic responses. For example, Carnival Cruise Line announced plans to sell 12% of its overall fleet for demolition in September. This trend is expected to continue throughout the industry as smaller cruise companies lack the financial capital to purchase older ships from the cruise giants, which is a common practice.
However, the recent influx of lawsuits against individual cruise lines might be the biggest obstacle that the industry will face. On October 7th, a securities lawsuit was filed against Royal Caribbean Cruise Line for making false and misleading statements and failing to disclose materially adverse facts. Norwegian Cruise Line is also facing a lawsuit alleging that it failed to disclose adverse facts regarding COVID-19. Although suits by passengers alleging emotional distress due to COVID-19 have been dismissed, recent shareholder suits are a serious threat to the industry’s longevity, given its already fragile financial status.
Can the Industry Be Revived?
The cruise giants know that they can’t live on credit forever. Despite current circumstances, they have continued to remain optimistic about reopening to change the public’s perception. Further, according to JP Morgan, Carnival Corporation and Royal Caribbean are attractive stocks to buy as the industry appears to be gearing to reopen. While this might be a good play long term, there is high risk due to uncertainty in the short term.
Although optimism exists, many view the cruise industry as on the verge of an unrecoverable collapse. To avoid this, cruise ships simply need to sail again; however, this is easier said than done. Although the resumption of cruise ship operations will certainly come with the concession of reduced capacity, cruise lines will be able to make up some of the loss in revenue by relying on reduced fuel prices as a result of the pandemic. Nonetheless, for any of this to materialize, the primary focus must be on assuring the safety of passengers and crew. On October 6th, CLIA members announced an agreement to conduct 100% testing of passengers and crew on all ships carrying more than 250 people. Whether this plan will persuade the CDC to lift the “no-sail” order or mandatory testing will be effective is up for debate. Regardless, this is unquestionably a step in the right direction for changing the perception of cruise travel in light of COVID-19. However, despite the implementation of extensive health and safety protocols and increased testing, recent outbreaks on cruise ships in Europe have provided insight into the herculean task of reviving the cruise industry in the United States. Moreover, successful suits by plaintiffs would open the floodgates for litigation and sink the industry. There is definitely a long road ahead for the cruise industry and time does not appear to be on its side.