A Business Plan/Manifesto for the Future of Cruising

[Hlitner]

After reading the details of the latest CDC guidelines and the comments of Frank del Rio (CEO of Norwegian Holdings) I have considered what the cruise industry can do to move forward and survive financial ruin (which may happen in any case).   It has become obvious that some folks within the CDC have a major anti cruise point of view and intend to destroy the US-based cruise industry.  Unless something or somebody gets the CDC to make a major attitude/policy change in the next few months I believe the entire US cruise industry is doomed unless they quickly change their entire business plan.

 

So what can the cruise industry do?  First they must abandon all US ports!  The CDC leaves them little choice as their guidelines are just not workable.    For Caribbean cruises,  ships will need to relocate their embarkation ports to willing islands such as in the Bahamas, St Maarten, Antigua, Barbados, etc.  Because this will eventually involve moving large numbers of North Americans to the Caribbean ports the cruise lines might consider adopting a model similar to what is oft used in the UK where packages are sold that include charter (or possibly commercial) air.  The world is now full of unused surplus aircraft (including many of the largest models) which may create an opportunity for the cruise lines to form their own charter air company.  Perhaps Carnival Air (which failed) was simply ahead of its time.   Unfortunately for many US cruisers this will mean they must invest in Passports as the Western Hemisphere Travel Initiative (WHTI) will become a big nothing since no cruise will meet its criteria.  Perhaps the Caribbean Islands would invoke their own initiative doing away with Passport requirements, but that is very unlikely. 

 

Unfortunately the biggest loser in the Caribbean will be St Thomas whose economy relies on a steady flow of cruisers (sometimes 30,000 on a single day) to boost their economy.  I think the big winners will be the Bahamas and St Maarten (which already has a very nice cruise port).  St Maarten can certainly use the increased embarkation business to help repair its economy which has been decimated by some past hurricanes.   Some Caribbean islands will likely enjoy an economic boom (because of the cruise industry) and one might expect a related hotel/resort boom on those same islands.  Folks that must fly in to an island to catch a cruise will often want to stay 1 or more nights and spend money (that used to go to US port cities) on those islands.   The large cruise corporations will obviously have opportunities to invest in those islands (and reap the financial rewards).  CCL, RCI, Norwegian Holdings and MSC may well be tempted to expand into the hotel/resort business and market cruise/hotel/air packages to North Americans. 

 

 Someday a book will be written how a few nameless CDC bureaucrats managed to destroy a major US based industry, eliminate over 100,000 related jobs, and send Billions of annual travel dollars out of the US to other islands/countries.  It is the kind of thing they teach in advanced college economics and business courses.   Europe will gain increased cruise business and warmer weather winter ports in southern Europe and Africa may well benefit during the winter months.  

 

As to Alaska, with the current CDC attitude the Alaskan ports that depend on cruising will likely become something akin to ghost towns.  There does not seem to be any solution to the Alaskan problem and that will probably delight some environmentalists.   Port Everglades and the Port of Miami might consider turning their cruise ports into new container ports.  The alternative is to leave those ports to rot and rust from lack of use and limited maintenance.  The 10s of thousands of hotels rooms in Ft Lauderdale and Miami will need to find new customers or close their doors.   As to all the lost jobs and related logistical support, well perhaps the CDC can use part of its budget to give financial aid to those who have been left jobless because of the CDC's actions (or lack thereof).   The US will survive the loss of their cruise industry and I pray that the cruise industry will survive the loss of the USA ports.  

 

Will the cruise lines eventually return to the US?  I suspect that there will be some resurgence but it will be very limited.  The over regulation (and threat of even more regulation), increasing demands of labor unions (involved directly and indirectly with cruising), constant evolution in environmental regulations, anti cruise activists, etc. will work against ever seeing a major cruise industry.  Basic economics will likely encourage cruise lines to stay away from the USA and rely on air transportation to give them a steady stream of happy passengers.

 

Just another comment about Florida and their cruise ports.  The Governor of Florida has made it clear he wants to bring back the cruise industry and has even authorized court action against the CDC.  But then that same Governor has recently signed new anti-vaccine legislation which put one more road block into the return of cruising to his own State.  When an industry such as the cruise industry has been beaten down by a US Government agency (CDC) for over a year, such a law like the new Florida law is simply adding more insult to an already badly damaged industry.  The reopening of the cruise industry is heavily reliant on a combination of vaccination and testing and Florida's new law really puts a dent in efforts to get the CDC to reconsider its recent guideline decisions.  I fear that Governor DeSantis will wake up one morning and wonder why the cruise ships have decided not to return to Florida ports.

 

Hank

[cruisemom42]

These "sky is falling" posts are getting to be a bit much. 🐔

 

If you look at the hard facts, cruising cannot do without the US -- either the ports or the cruisers. At least, not if it wants to survive in its current, highly profitable form.

 

Do you really think all the cruisers who take cheap 5- or 7-day cruises from Florida (many of whom drive to the port) are going to be financially able to shell out not just for a passport but for flights and then hotels in foreign ports?  And do you see cruising surviving without an Alaska summer season? 

 

More than 50% of cruise passengers come from the US. Not all of these cruise on US-ported ships on closed loop cruises, but a good number of them do.

 

I am extremely skeptical of this hand-wringing and breast-beating by the cruise line CEOs.  On the one hand I have sympathy for them -- they desperately want cruising to restart.  But how are we supposed to square the differing messages we hear from them?  They've told us for years that their ships could only make a profit when fully (100%) booked.  Then about halfway through the pandemic they start telling us that no, actually they COULD make a profit sailing at a lower capacity.  This is far from the only thing they've been less than honest about.

 

If the cruise lines had put as much effort into taking the CDC requirements seriously and preparing to meet them as they have in protesting them, we'd be a lot farther along in this process. The truth is that they (the CEOs) are not the drivers of this process, and they need the US market. Perhaps they should, in the words of the British, pull their collective finger out and get on with it.

 

 

 

[clo]

1 hour ago, cruisemom42 said:

If the cruise lines had put as much effort into taking the CDC requirements seriously and preparing to meet them as they have in protesting them, we'd be a lot farther along in this process. The truth is that they (the CEOs) are not the drivers of this process, and they need the US market. Perhaps they should, in the words of the British, pull their collective finger out and get on with it.

 

This^^^^^

[bigrednole]

I agree. The cruise lines need to band together with FL, TX, and AK. Clearly define how many people in the US will immediately be laid off and all cruise ships leave the country. Give Congress only 1 chance and an immediate chance to fix the situation. Give them 1-hour with all 10,000s of employees that their jobs are immediately gone if the decision is not made in that 1-hour. You would see congress overturn the CSO in that time. The threat of lost $Bs annually would be the end to their careers.

[ontheweb]

1 hour ago, bigrednole said:

I agree. The cruise lines need to band together with FL, TX, and AK. Clearly define how many people in the US will immediately be laid off and all cruise ships leave the country. Give Congress only 1 chance and an immediate chance to fix the situation. Give them 1-hour with all 10,000s of employees that their jobs are immediately gone if the decision is not made in that 1-hour. You would see congress overturn the CSO in that time. The threat of lost $Bs annually would be the end to their careers.

Really? Congress get something done in one hour? 

 

This would be funny, if it was not for the fact that you are seriously putting this forth.

[bigrednole]

I know, but the threat of 10,000s of jobs an $Bs in annual revenue and tax dollars is enticing to get something done. The cruise lines would be smart to band together and have a 100% exit plan and not have it as an idle threat.

 

[Roz]

An entire segment of the travel industry is not going to leave the US.

[JRG]

11 hours ago, cruisemom42 said:

These "sky is falling" posts are getting to be a bit much. 🐔

 

As a 12 year old,   I don't see it that way.   As an adult,  I don't see it that way either.

 

I do see alot of hypocrisy when a poster holds others posters to high standards of journalistic objectivity and then fails to demonstrate same.

 

 

 

[DirtyDawg]

12 hours ago, cruisemom42 said:

These "sky is falling" posts are getting to be a bit much. 🐔

 

If you look at the hard facts, cruising cannot do without the US -- either the ports or the cruisers. At least, not if it wants to survive in its current, highly profitable form.

 

Do you really think all the cruisers who take cheap 5- or 7-day cruises from Florida (many of whom drive to the port) are going to be financially able to shell out not just for a passport but for flights and then hotels in foreign ports?  And do you see cruising surviving without an Alaska summer season? 

 

More than 50% of cruise passengers come from the US. Not all of these cruise on US-ported ships on closed loop cruises, but a good number of them do.

 

I am extremely skeptical of this hand-wringing and breast-beating by the cruise line CEOs.  On the one hand I have sympathy for them -- they desperately want cruising to restart.  But how are we supposed to square the differing messages we hear from them?  They've told us for years that their ships could only make a profit when fully (100%) booked.  Then about halfway through the pandemic they start telling us that no, actually they COULD make a profit sailing at a lower capacity.  This is far from the only thing they've been less than honest about.

 

If the cruise lines had put as much effort into taking the CDC requirements seriously and preparing to meet them as they have in protesting them, we'd be a lot farther along in this process. The truth is that they (the CEOs) are not the drivers of this process, and they need the US market. Perhaps they should, in the words of the British, pull their collective finger out and get on with it.

 

 

 

While I agree with you regarding the seemingly endless "sky is falling" posts, I have to make a couple of comments. 

 

First, the Cruise industry is not a highly profitable industry, in fact the industry's profitability is significantly below the S&P 500 average.  For example, here are some of Royal Caribbean Corp's 9-year average profitability ratios vs The S&P500's (2011-2019); Note: I dropped 2020 because it was such an outlier year) 
Return on Equity  RCCL 10.5%, S&P500  15.8%

Return on Invested Capital RCCL 5.8%, S&P500 8.7%

Free Cash Flow Margin  RCCL 5.2%, S&P500 10.1%

By comparison, Apple's ratios over the same time frame were:

Return on Equity 41.6%

Return on Invested Capital 30.9% 

Free Cash Flow Margin 26.2%

Now that's a highly profitable company in a very profitable industry!

 

Secondly, CEO's statements about their ships could only make a profit when fully (100%) booked was always based on the assumption that the pricing, at the time of those statements, held. Examining any cruise company's income statement demonstrates this very clearly. And yes, the cruise lines can be profitable at lower occupancy rates if their revenue per person increases enough. In fact, these cruise lines could theoretically be profitable with only one paying passenger aboard provided that one cruise fare was large enough. It would be a Whopper of a cruise fare!

 

I agree with most of your other comments on Corporate management's dealing with the pandemic. But I have to admit Del Rio's rant the other day was priceless. You just don't see that candor from many CEO's today. 

 

Have a wonderful day. 

 

Edited May 7, 2021 by DirtyDawg

[JRG]

10 minutes ago, DirtyDawg said:

Secondly, CEO's statements about their ships could only make a profit when fully (100%) booked was always based on the assumption that the pricing, at the time of those statements, held. Examining any cruise company's income statement demonstrates this very clearly. And yes, the cruise lines can be profitable at lower occupancy rates if their revenue per person increases enough. In fact, these cruise lines could theoretically be profitable with only one paying passenger aboard provided that one cruise fare was large enough. It would be a Whopper of a cruise fare!

 

This is an exceptionally fine post.      Also remember that the cruise defines 100% occupancy different because of the nature of dual occupancy,   and 100% occupancy can mean different things to different observers.

[JRG]

I think the question everybody should ask is:

 

   "Has the CDC run its course"  ?  (no pun intended, implied or assumed)

 

Or in other words,   is there anything more they can do for us,  now that wheels of vaccination are turning.    I think they did a good job,  but now they need to relax the cruising siege.

 

I think Hank has good points and his experience in public health administration tells me that his opinion carries weight.

 

I can tell you that he is a reasonable poster too,   and If you can convince him that your argument has merit,  he will listen to it,  and if it changes his mind he will be a gentleman and tell you so.

 

Listen to what he is saying and try to give him a compelling point why you think he is wrong,  not a candygram for Mongo,  but a genuine point-counter-point discussion that doesn't have to get broad-sided by tit for tat.

 

I'm okay with Cruisemom42 badgering the CEO's for wishy washiness and walrus scumble,  they'll  have to bear the cross of ethics to defend  for a long time but right now the CDC needs to lift the embargo.

 

It would be great if the cruiselines tell us what is the big problem in committing to 100% vaxxed crew,   this to me seems to be a mystery.