BofA warns cruise demand eroding

[Hlitner]

First, CCL, RCI, and NCLH were all forced to obtain financing under less than ideal terms.  That is what happens when a corporation is desperate, and has little leverage in the financial markets.  It has been reported that CCL is under negotiations to sell Seabourn to the Saudi Public Investment Fund (PIF) which would give CCL the ability handle their debt for the near future.   Make no mistake, the cruise lines are in more trouble then some think.  When they obtained their financing (during the worst part of COVID) is was assumed they would be back to something akin to normal operations by the 2nd half of 2021.  Here we are nearly a year later and the bottom is falling out due to inflation, rapidly increasing interest rates, and customer demand far below what was expected.   I also think (and this is my pure speculation) that when the cruise lines tired to paint a rosy picture talking about excellent future bookings they were exaggerating.  My speculation is that much of those advance bookings were folks booking with Future Cruise Credits (from cancelled cruises) who were time limited on using these credits.  But those Future Cruise Credits are simply a contingent liabilty.....or essentially accounts payable.

 

Many folks are still afraid to cruise and travel.  Even on our most recent cruise (27 day Seabourn cruise) there were only about 500 passengers on a 600 passenger ship.  And quite a few of those 500 were using FCCs from previous cancelled (due to COVID) cruises.   Last October when we cruised for 14 days on the Seabourn Odyssey we had about 130 passengers on a 450 passenger ship!   And yet the cruise line fully staffed that cruise with no apparent cut-backs!  Bottom line is that many cruises these days are either losing money of barely breaking even.  

 

So what is the analyst as BOA seeing?  FCCs are starting to expire (or be used) and booking are not up to anything close to what was previously predicted.  There is also price elasticity issues in the cruise world (especially with the mass market lies) which make it difficult for cruise lines to increase their prices in an era of rapid expansion of operating expenses.   I believe (and this is strictly my speculation) that the cruise lines "exaggerated" the positive booking info (last year and a few months ago) by counting bookings that were simply folks using Future Cruise Credits issued from cancelled cruises.  These FCCs do not generate much income for the cruise lines and are really a liability.  

 

What is even more distressing are all the negative reviews I am seeing from folks on recent HAL cruises.   Here is a link to an interesting recent post.  I put it here since I imagine most HAL folks would not have seen this post on a different part of CC:

 

Hank

[quack2]

On 6/9/2022 at 11:44 AM, Mary229 said:

That is interesting in that the US government is now paying 9.5% on their ultra safe I-bonds

Totally unrelated.  Series I Bonds are tied to the rate of inflation, not the creditworthiness of the Issuer.

[kangforpres]

Selling Seabourn at a good price I think would help the CCL umbrella. Being that it is the only luxury line they have it's kind of out of place in the family. They could then concentrate on improving all the mass market brands.

[BermudaBound2014]

22 minutes ago, kangforpres said:

. They could then concentrate on improving all the mass market brands.

If by “improving” you mean paying down debt, I concur ;). 

[Guest ldtr]

On 6/9/2022 at 4:40 PM, rkacruiser said:

CCL has gotten slammed by some who don't understand why they refinanced some of their debt into bonds that paid 10%.  It was to pay off debt that was at a higher interest rate as well as providing for some additional cash.  

Actually I just went back and looked at the last 10k.   The higher level debt of 11.5%% due in 2023 was already paid off prior to the 10k last November.  As such there was no higher rate debt on their books at the time the 10.5% debt was initiated.  So if they were using it to pay for debt due in 2023 (one of the uses listed in the 8k) those debts are at 5.8% and 7.2% as well as some loans with a floating rate (max 4.5%).

 

So this recent loan could not be for paying off higher rate debt because none existed according to the table of debts in the last 10k.

Edited June 11, 2022 by ldtr

[BermudaBound2014]

15 hours ago, Hlitner said:

   I also think (and this is my pure speculation) that when the cruise lines tired to paint a rosy picture talking about excellent future bookings they were exaggerating.  My speculation is that much of those advance bookings were folks booking with Future Cruise Credits (from cancelled cruises) who were time limited on using these credits.  But those Future Cruise Credits are simply a contingent liabilty.....or essentially accounts payable.

 

Hank

 

Bingo! Excellent post.

 

We all know it is the job of the CEO and team to paint as rosy picture as possible. It's the job of investors to pay close attention.

 

Here is a headline that ran in gobs of articles touting how great the future of cruising is, but what they fail to mention is that March 31st was the first hard deadline to book FCC's or lose them. No surprise bookings were high, but they were manufactured. Yet the headlines temporarily drove the price of stocks up.

 

"United States-based international cruise liner Carnival Cruise Line recorded its highest booking week ever between March 28 and April 3. The cruise liner saw a double-digit increase in bookings compared to its previous record for maximum seven-day bookings."

 

CCL closed at $11.05 yesterday which represents a 63% decline since cruises resumed last June. The stock hasn't been this low since March of 2020. As you said... "Make no mistake, the cruise lines are in more trouble then some think."

[mightycruisequeen]

You don't run a successful hospitality industry by treating your customers like plague carriers until proven otherwise~ not for long, anyway.  Just my opinion, but there it is.

[BermudaBound2014]

12 minutes ago, mightycruisequeen said:

You don't run a successful hospitality industry by treating your customers like plague carriers until proven otherwise~ not for long, anyway.  Just my opinion, but there it is.

 

All cruise lines are struggling to recruit passengers. I do agree that much of the hesitancy is due to covid protocols. I know that, for me, I will not sail again until the possibility of quarantine is removed and I'm just one of many.

 

Since guests are onboard a ship for many days, cruise ships do not have the same plausible deniability offered to the airlines and hotels. They are caught between a rock and hard place.  It's bleak.

[Guest ldtr]

1 minute ago, BermudaBound2014 said:

 

All cruise lines are struggling to recruit passengers. I do agree that much of the hesitancy is due to covid protocols. I know that, for me, I will not sail again until the possibility of quarantine is removed and I'm just one of many.

 

Since guests are onboard a ship for many days, cruise ships do not have the same plausible deniability offered to the airlines and hotels. They are caught between a rock and hard place.  It's bleak.

At this stage I expect the cruise lines are more impacted by the marked difference between the cruise experience of today vs pre-Covid, even with the rules being relaxed.  The staffing and maintenance issues on some lines are very noticeable.  Will be doing my first cruise back on HAL in August (though have done 7 on other lines) and will have to see how they are doing.

 

Not much chance of getting forced into ship quarantine these days, unless you voluntarily test.  THe cruise lines really do not want to test you and passengers that want to avoid testing certainly can on most cruises.  Basically being sick and avoiding testing is not much different than being sick and not quarantining.

[BermudaBound2014]

2 minutes ago, Hlitner said:

 I just noticed on a CC board that MSC's new ship (which holds over 5000) has been cruising with only about 2000.  This is not because of any capacity restriction but simply because many folks are afraid to cruise because of COVID. 

 

Another excellent post :).

 

 I believe that the fear of catching covid is only one chapter in the story of why cruise ships are sailing with low occupancy. I agree that the fear itself can be debilitating and also acknowledge that anyone with a serious comorbidity probably has good reason to be cautious since, as you stated, cruises are places where viruses are transmitted easier.  

 

The other half of the coin is that there are a large group of people who aren't cruising because of the current protocols (masking, testing, and vaccination). Some will not vacation when a mask is required. Some are hesitant to select cruising and then test positive and be quarantined. Many will not vaccinate children, and about 35% of the American Population refuses to vaccinate as an adult. Still others enjoy land vacations and are willing to go that route until cruising simmers down.

 

The industry is damned if the do and damned if they don't. This is where Niche markets may come in. Specific ships that cater to each side of the coin. They did this when the ban on smoking was first introduced. Certainly it would be messy out of the gate, but I'm thinking outside the box and that's what it is going to take if we want cruise lines to survive financially. 

 

 

[JRG]

9 minutes ago, Hlitner said:

I fear there are really no good solutions for the cruise industry. 

 

We saw some indirect Regulatory Relief at the Executive Level for the traveling industries as re-rentry to the USA just got alot easier,    so you have one possible component for devising a solution. (Regulatory Relief)

 

There are excellent points being made in the previous 10 posts or so,  but its difficult to put it all together and and answer the question.   

 

We have to rely for now on the 10-k and disclosures which will show you the balance sheets last quarter but the income statements we are more reliant on the industry analysts.

 

The Cash Flow statement is the instrumentation and although I am not versed on the versed schedule for debt service,  I am relying on deductive business reasoning or, the logic of understanding that they have been funding their operations and working capital primary thru new deposits (strong bookings or reporting) and debt offerings as a short-term strategy to weather the storm.   The occupancy rates HAVE to be dominated by cruisers cashing in accumulated FCC and there is no new cash there so this will continue for some time.

 

The only remaining business alternatives to raise working capital remain disposition of ships and this would reflect a next-round of contraction-for-survival until cash from operations can support the 'ongoing concern'.   It is a squeeze play and will become a descending spiral because of the labor issues complexity.   The inability to staff ships in a economy-wide problem,  and when the new hires are employed,  they are less experienced,  this is a decrementing quality debt to cruisers,  and we are seeing that in the various state-of-the-art complaints.

 

Strategic Analysis:

 

The individual decision to sell a particular ship is an inevitable next step if cruising demand continues to decline,  the problem is that there still alot of FCC's out there,   we have a small amount,  so the NEGATIVE CASH FLOW will continue until a resumption to normal operations..

 

Time to start watching Ships Movements,  but Regulatory Relief,  whether by Congress or Executive Action may look like the only way to turn this thing around otherwise you have to move the clock to cruising-def-con 1 or something worse than where we are right now.

 

 

[BermudaBound2014]

2 minutes ago, JRG said:

The individual decision to sell a particular ship is an inevitable next step if cruising demand continues to decline move the clock to cruising-def-con 1 or something worse than where we are right now....

 

Great post, thank you for sharing your thoughts.

 

Instead of selling ships, CCL is big enough where they can start selling off entire cruise lines under the CCL umbrella. I believe Seabourn will be the first to go. These are rumors but since the Saudi's funded lots of debt since March of 2020 (I believe they maybe up to around 15%?), it makes sense. Then again, what makes sense to me doesn't always span put 😄 

 

Personally, I think HAL is also vulnerable given they have zero new builds on the docket. Princess is now the poster child for covid, so that's problematic too. 

 

https://www.cruiseindustrynews.com/cruise-news/27561-report-carnival-corp-eyeing-seabourn-brand-sale-to-saudi-arabia.html

[seaoma]

Fodor's polled around 1500 of it's readers. This is what they think about the situation with travel during Covid. 

 

COVID-19

COVID-19 has ruled travel talks for more than two years and even now, it’s a big source of anxiety. In fact, 51% of readers are concerned about catching and spreading COVID-19 while traveling, making it the number one travel concern. In fact, 53% of readers would cancel their trip if the destination experienced a COVID-19 surge.

 

The myriad rules and protocols around traveling in the age of COVID are also a big concern–39% are worried about restrictions, which include testing requirements and travel limitations.

However, while many readers are concerned about COVID protocols, only 16% think COVID protocols are the single most annoying thing about travel right now. What’s more annoying? Flight cancelations (27%), unruly passengers (25%), and the price of travel (22%). 

[BermudaBound2014]

@seaoma Thanks for sharing. 

 

What stands out to me is how relatively equally the 'annoying' things are. It's not like there is one thing that can turn around the cruise industry. 

 

27% Flight Cancellations: This is expected to last thru the summer as airlines are struggling to hire and train staff since many were laid off during Covid. I read an article where American Airlines was actually shortening the time involved in pilot training to move them into jobs quicker. Of course, then there is fuel cost. Even though Airlines are hedged, it's a consideration.

 

25% unruly passengers: This is a surprise to me.

 

22% price of travel: I also just read that flights will likely double by the end of the summer. Has anyone looked at hotel pricing lately? A room at Honua Kai in Maui was running about $400 a night pre covid. It is currently selling @ over $1,000 (a night).  Even driving around the RV is going to cost significantly more this summer.

 

16% Covid protocols: I think this number would be significantly higher if they polled just cruise travelers. This number represents all travel and, let's face it, there are basically zero protocols left for most travel. No more masks on airplanes. testing to enter countries is basically nil,  No one is asking for covid vaccine.... except cruising of course. Cruising still requires vaccine, masking, and testing. I suspect cruisers are much more bothered by protocols than someone going on a land vacation to the islands. 

Edited June 12, 2022 by BermudaBound2014

[seaoma]

16 minutes ago, BermudaBound2014 said:

Cruising still requires vaccine, masking, and testing. I suspect cruisers are much more bothered by protocols than someone going on a land vacation to the islands. 

 

I'll agree with vaccine and testing. Masking....very rare today. Just in the last day or 2 have I heard of any requirements. Recommendations has been the usual but we can see that a majority aren't following recommendations. 

 

I look at it more as you have to add all of those concerns together, potentially.  Thus, someone cruising has the problem with catching/spreading covid, protocols, price, cancellations and unruly passengers. That's enough to keep a huge number of cruise passengers home. 

 

The largest percentage of people are worried about catching or spreading covid. HAL has the ability to minimize that but chooses not to. Perhaps whoever they are listening to isn't giving them good advice.

 

Land travel has a lot of these factors in play also, but it's a lot easier to pick and choose where the weak or dangerous activities are. I spent weeks in our motorhome and we only had contact with someone across the gas pump.

 

Edited June 12, 2022 by seaoma

[Guest ldtr]

16 minutes ago, BermudaBound2014 said:

@seaoma Thanks for sharing. 

 

What stands out to me is how relatively equally the 'annoying' things are. It's not like there is one thing that can turn around the cruise industry. 

 

27% Flight Cancellations: This is expected to last thru the summer as airlines are struggling to hire and train staff since many were laid off during Covid. I read an article where American Airlines was actually shortening the time involved in pilot training to move them into jobs quicker. Of course, then there is fuel cost. Even though Airlines are hedged, it's a consideration.

 

25% unruly passengers: This is a surprise to me.

 

22% price of travel: I also just read that flights will likely double by the end of the summer. Has anyone looked at hotel pricing lately? A room at Honua Kai in Maui was running about $400 a night pre covid. It is currently selling @ over $1,000 (a night).  Even driving around the RV is going to cost significantly more this summer.

 

16% Covid protocols: I think this number would be significantly higher if they polled just cruise travelers. This number represents all travel and, let's face it, there are basically zero protocols left for most travel. No more masks on airplanes. testing to enter countries is basically nil,  No one is asking for covid vaccine.... except cruising of course. Cruising still requires vaccine, masking, and testing. I suspect cruisers are much more bothered by protocols than someone going on a land vacation to the islands. 

There are some countries that still differentiate between vaccinated and unvaccinated.

 

One main reason why the cruise lines would still require it would be to avoid serious cases and the press thst comes with it.

[iancal]

No sense of pricing at the moment.

 

We are travelling independently now.  Our pre covid custom is to snag a last minute, well priced cruise during land travel.  We are not even considering,let alone pricing cruises at the moment.  
 

We are sitting on our hotel balcony in Lagos, Portugal wistfully watching a cruise ship sail by.  Hopefully we will be on one sometime next year.

 

The same goes for our tentative  Greece trip in Sept/Oct.  Typically  we would be viewing Athens, Istanbul, Rome, or even Southampton departures.

 

Neither of us can get our heads around being quarantined on a ship.  Nor are the close quarters of a cruise ship appealing to us at the moment. That is even before we shop.  So we will stick to land vacations until at least next spring.

 

 

Edited June 12, 2022 by iancal

[fatcat04]

1 hour ago, iancal said:

No sense of pricing at the moment.

 

We are travelling independently now.  Our pre covid custom is to snag a last minute, well priced cruise during land travel.  We are not even considering,let alone pricing cruises at the moment.  
 

We are sitting on our hotel balcony in Lagos, Portugal wistfully watching a cruise ship sail by.  Hopefully we will be on one sometime next year.

 

The same goes for our tentative  Greece trip in Sept/Oct.  Typically  we would be viewing Athens, Istanbul, Rome, or even Southampton departures.

 

Neither of us can get our heads around being quarantined on a ship.  Nor are the close quarters of a cruise ship appealing to us at the moment. That is even before we shop.  So we will stick to land vacations until at least next spring.

 

 

Exactly. Lots of choices. We are finishing up almost 2 weeks at Orient Beach in St Martin. We have don over a months worth of land travels this past year. Only one snafu, a cancelled flight that AA fixed for us and actually got us in earlier. We are booked on a HAL cruise this Fall simply because we have so much FCC that expires at the end of this year but yes, we too have no plans to book another cruise and will continue land travels. Better value for money, less hoops to jump through. 

[kangforpres]

They is a story in the WSJ today about how cruise pricing is "lost at Sea" but I don't subscribe so I can't read it.  Here it is: https://vigourtimes.com/cruise-line-pricing-is-lost-at-sea/

Edited June 12, 2022 by kangforpres

[Cruise Junky]

4 hours ago, iancal said:

No sense of pricing at the moment.

 

We are travelling independently now.  Our pre covid custom is to snag a last minute, well priced cruise during land travel.  We are not even considering,let alone pricing cruises at the moment.  
 

We are sitting on our hotel balcony in Lagos, Portugal wistfully watching a cruise ship sail by.  Hopefully we will be on one sometime next year.

 

The same goes for our tentative  Greece trip in Sept/Oct.  Typically  we would be viewing Athens, Istanbul, Rome, or even Southampton departures.

 

Neither of us can get our heads around being quarantined on a ship.  Nor are the close quarters of a cruise ship appealing to us at the moment. That is even before we shop.  So we will stick to land vacations until at least next spring.

 

 

Agreed. I’ve cancelled all cruises and feel safer with the deposits in my bank account.  We have a month in Hawaii coming up this year. Next year, we’ll either stick to land trips or last minute cruises. 

[iancal]

16 hours ago, seaoma said:

 

I'll agree with vaccine and testing. Masking....very rare today. Just in the last day or 2 have I heard of any requirements. Recommendations has been the usual but we can see that a majority aren't following recommendations. 

 

I look at it more as you have to add all of those concerns together, potentially.  Thus, someone cruising has the problem with catching/spreading covid, protocols, price, cancellations and unruly passengers. That's enough to keep a huge number of cruise passengers home. 

 

The largest percentage of people are worried about catching or spreading covid. HAL has the ability to minimize that but chooses not to. Perhaps whoever they are listening to isn't giving them good advice.

 

Land travel has a lot of these factors in play also, but it's a lot easier to pick and choose where the weak or dangerous activities are. I spent weeks in our motorhome and we only had contact with someone across the gas pump.

 

We have been in Portugal for several weeks.  Lots of masking indoors and on all public transportation….trains, busses, etc.

 

There was a requirement to be vaxed and to have an antigen lab test done within 24 hours prior to the flight.  Not a biggie.  We had the test done the morning of our flight.  
 

Cost…..anywhere from $15-$40 CAD depending on the pharmacy.   Some travellers seem to be making a big deal about it however it was hardly an onerous requirement.  It took all of twenty minutes from start until we got the results paperwork.

Edited June 13, 2022 by iancal

[ontheweb]

2 hours ago, iancal said:

We have been in Portugal for several weeks.  Lots of masking indoors and on all public transportation….trains, busses, etc.

 

There was a requirement to be vaxed and to have an antigen lab test done within 24 hours prior to the flight.  Not a biggie.  We had the test done the morning of our flight.  
 

Cost…..anywhere from $15-$40 CAD depending on the pharmacy.   Some travellers seem to be making a big deal about it however it was hardly an onerous requirement.  It took all of twenty minutes from start until we got the results paperwork.

But does it become a more onerous requirement when the test reads positive despite no symptoms, and possibly a false positive?

[iancal]

1 hour ago, ontheweb said:

But does it become a more onerous requirement when the test reads positive despite no symptoms, and possibly a false positive?

That is exactly why we scheduled it for 9AM when we had an 11PM flight.

 

We wanted to leave plenty of time for retesting just in case.  And we wanted to do it in a city location where we had many options for testing pharmacies vs at the airport where we would be captive customers so to speak.

 

Our other option was to do a $150 pp covid 19 test three days prior to our flight.

 

We were well aware of the requirements and the risk of a positive test prior to booking air.  We paid a premium for refundable air just in case.  We only booked accommodation that was refundable.   We had a backup plan.

[DaveOKC]

This morning I read an article on my phone that stated that the cruiselines are now asking the CDC to lift the testing ban!  I will try to find it and post on this board if I can - lets HOPE that this happens.

 

[Mary229]

18 minutes ago, DaveOKC said:

This morning I read an article on my phone that stated that the cruiselines are now asking the CDC to lift the testing ban!  I will try to find it and post on this board if I can - lets HOPE that this happens.

 

CLIA issued a statement.  I have only found the original reference of cruisehive.   Viking removed all testing unless required by law.   I expect we will hear from RCCL today