Analysis: Will coronavirus sink the cruise industry?
Marketing for the Grand Princess cruise ship advises prospective passengers to "Expect the extraordinary" when they take sail. Last week, that promise was exceeded when helicopters lowered COVID-19 test kits to a poolside deck as the ship floated off San Francisco. Twenty-one passengers and crew members tested positive for the coronavirus. This week, the ship docked in Oakland, California, and started disembarking passengers, to be sent for medical care or into isolation. But those cruisers weren't the only ones to face an extraordinary end to their vacation: Elsewhere, onboard COVID-19 outbreaks have sickened hundreds and sent luxury liners on desperate searches for ports at which they can dock.
The human toll from the virus is steep; so, too, is its effect on the public image and finances of the $45 billion cruise industry. The weight of the U.S. government is against it, with the State Department now warning all Americans not to travel by cruise ship. "It ain't pretty," Richard Fain, CEO of Royal Caribbean Cruises Ltd., one of the world's largest cruise companies, said last week. "In fact, to use a technical term I learned in business school, it sucks."
Royal Caribbean's stock fell as much as 19% Monday, amid a broad market sell-off, but rebounded Tuesday as President Donald Trump suggested government help might be coming to the industry. Also Tuesday, S & P Global Ratings said it might cut the cruise company's bond rating, as well as that of rival Carnival Corp.
Fain's pain is unlikely to generate much public sympathy. But with tourism accounting for roughly 10% of global gross-domestic product and employment, it's worth acknowledging. If the world's economy is to recover quickly from coronavirus, tourism will need to recover, too. COVID-19 is a more serious threat than the other health and safety issues that have plagued cruises over the decades. Turbulence is sure to follow, but cruises -- like the rest of the global tourism industry -- aren't sunk.
The birth of the cruise industry dates to the 1960s, and so does its image as a floating incubator for human illness. Outbreaks of gastrointestinal illness were linked to (among other issues) bad water, shrimp cocktails and living in close quarters with thousands of strangers. Although governments in the U.S. and elsewhere have implemented comprehensive inspection programs that have reduced the occurrence of shigellosis and other diarrhea-inducing bugs, there's still no avoiding them. Indeed, just last month, a Princess Cruises ship cut short a 14-day Caribbean trip when hundreds of passengers and crew came down with suspected norovirus.
Meanwhile, outbreaks of respiratory illnesses like the flu (and COVID-19) are common enough on cruise ships that the U.S. Centers for Disease Control and Prevention publishes guidelines on how to manage them. The World Health Organization has long warned that cruises pose health risks to older passengers -- the demographic that happens to be the cruise industry's prime demographic. On Sunday, a top U.S. health official told elderly Americans, "just don't get on a cruise ship."
It doesn't end there, either. Passengers have been stranded on ships, such as the infamous 2013 "poop cruise" (during which a fire knocked out power and sewage systems), regularly fall off cruise ships, and have even been threatened with violent death and drowning, such as during the Costa Concordia sinking in 2012. Yet, remarkably, none of these incidents, individually or collectively, has managed to stall the industry's growth over the decades. In fact, it's been accelerating. Between 2009 and 2019, straight through the depths of the Great Recession, global passenger numbers increased every year, going from 17.8 million to 30 million.
Is COVID-19 the problem that grounds the fun? For now, it doesn't look good. The Wall Street Journal reports that some Mediterranean cruises are operating with 20% fewer passengers, compared with a year earlier. Meanwhile, the world's biggest cruise lines have canceled most Asia-Pacific cruises. It doesn't help, either, that social media is filled with users reacting to each cruise ship outbreak by asking, "Why would anyone go on a cruise?"
But even with these problems, the cruise industry has plenty of reasons not to worry. First, and perhaps most important, the traveling public has a decadeslong record of not caring. "Nothing is permanent," explained Frank Del Rio, chief executive of Norwegian Cruise Line Holdings Ltd, in a recent interview. "Customers do have a relatively short memory, thank God." Next, long-term demographics favor the travel industry -- especially cruises. Cruises have attracted a younger clientele in recent years, but older passengers (in 2018, 51% of passengers were over age 50) with time to sail remain the key, recession-proof industry demographic.
Finally, there is China. Only 10% of its citizens have traveled internationally, and yet the country is already the world's biggest source of outbound travelers. Cruises have been a direct beneficiary of that growth: Between 2012 and 2016, Chinese passenger counts grew by an average of almost 80% per year. Most of these passengers, like their counterparts elsewhere, won't be deterred once the pandemic situation resolves. In fact, thanks to the Chinese government's determination to put the country back to work, Chinese travel bookings are rebounding.
Most of those bookings are likely work-related, but it's just a matter of time before pent-up demand (intensified by weeks in quarantine) results in new vacation bookings. A recent survey of Chinese travel consumers found that more than half plan to go somewhere within three months of the coronavirus crisis being resolved -- and one-quarter within one month. Already smaller boutique cruise lines are reporting that business is holding steady or even growing as cruises are reconfigured into shorter-term voyages targeting travelers in the vicinity of cruise terminals.
As governments and cruise lines manage shipboard coronavirus onto land and out of the news, bookings should rebound across the industry. That's good news for a global economy that could badly use some, and a cruise industry that thrives on being remembered as a safe and accessible getaway. Even in the midst of a crisis, the next vacation is just around the corner.