Norwegian Cruise Line Gives Up on 2020

Cruise line stocks initially rallied on Friday after the Centers for Disease Control and Prevention (CDC) replaced its expiring “no sail order” with a conditional one to allow for the eventual restart of the industry. Royal Caribbean (NYSE:RCL), Carnival (NYSE:CCL)(NYSE:CUK), and Norwegian Cruise Line Holdings (NASDAQ:NCLH) had previously suspended all cruises through the end of November, and this was seen as the first step toward getting passengers on the gangway again. 

However, industry leaders have a different take on things after diving into the framework of the new and beefy 40-page conditional sailing order. Each of the companies will have to install labs for COVID-19 testing at sea on every ship, put those vessels through costly cruising simulations, and follow a number of additional regulations that go beyond those that Royal Caribbean and Norwegian Cruise Line had proposed in late September via the Healthy Sail Panel they formed. Getting back to business by next month doesn’t seem feasible anymore, and Norwegian Cruise Line on Monday morning became the first of the three giant operators to officially cancel the remainder of its 2020 voyages.

A snorkeler on a beach with a surgical mask on crosses her arms.

Image source: Getty Images.

Choppy seas

Those December sailings could’ve been lucrative. Normally, the desire of snowbirds to escape the cold and the appeal of holiday-themed cruises combine to lure plenty of passengers into premium-priced itineraries at this time of year. More importantly, they would’ve been the cruise lines’ first chances to record some revenue and stop adding to their mounting refund obligations. 

Still, setting sail again in December was always a long shot. The industry had pushed out its scheduled restart date several times in 2020 as the pandemic progressed. With both the U.S. and global new daily case numbers back to setting new all-time highs again, it would have been a hard sell to convince governments to let those ships start cruising again — and even if they succeeded, convincing potential passengers to come aboard could have proved equally difficult. It would not have helped the cruise lines’ case that many of the European nations that had begun letting ships resume operations have since reversed course in the wake of the steep spike in COVID-19 case counts and actual outbreaks on some recent sailings.

The turnaround for this industry can’t start until its ships are sailing again, and if an effective vaccine takes another year or so to be widely available, the cruise lines may not be able to hold out that long. To survive, they will need to figure out protocols that will allow them to return to sailing safely, even if those mean a less-ideal experience for vacationers and an even-less-ideal situation when it comes to the companies’ bottom lines. Just as we’ve seen with those theme parks and movie theaters that reopened this summer, it’s more about reconditioning consumers to count on experiences than the lack of near-term profitability that matters at the moment.

Consumers are already starting to lose faith in this once-aspirational mode of travel. After the first wave of cruise line cancellations, plenty of passengers were relatively giddy about accepting 125% of what they had paid in the form of future cruise credits. Now, we’re seeing at least half and as many as 60% of the impacted passengers simply asking for their money back. The lack of U.S. and Caribbean cruises as we close in on eight months of the disruption and a global recession is making things difficult for Norwegian Cruise Line, Carnival, and Royal Caribbean. With the 2020 calendar running out of pages to tear off, this industry will need to do everything that it can to make sure it can get back to business as early as possible in 2021.

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