In the midst of a global stock market meltdown, most sectors have seen share prices depreciate rather quickly. However, there have been few industries that have endured the onslaught that is currently pushing cruise lines across the world to the brink of collapse.
The three largest cruise lines in operation are Carnival Corporation, Royal Caribbean Cruises and Norwegian Cruise Line Holdings. Put together, these three companies account for about 62 percent of all revenue recorded by the entire cruise line industry. With only three firms accounting for such a large slice of the industry’s revenue, unprecedented circumstances can cause rapid and dramatic shocks to not only the health of Carnival, Royal Caribbean and Norwegian, but also the entire space.
With the emergence of COVID-19, businesses of all sizes have been forced to cut back, or suspend, the production of goods and services as states across the country continue to enact stay-at-home orders and other social distancing policies to curb the spread of the disease. This, in turn, has caused a steep decline in confidence among American consumers. The University of Michigan’s Index of Consumer Sentiment dropped from 101.0 in February to 89.1 in March, representing a decline of 11.78 percent. Such a decline is one of the steepest on record.
Vacationing on a cruise ship is considered leisure travel, and thus is very sensitive to prevailing global circumstances. Therefore, with the emergence of COVID-19, many consumers are altering, or outright canceling, travel plans in order to limit exposure to other people. Known for notoriously tight living quarters, vacationing on a cruise ship is one of the least ideal actions to take in order to minimize one’s exposure to COVID-19. Take, for instance, Royal Caribbean’s Symphony of the Seas. This particular ship can hold up to 6,680 people. During stable times, this ship would be packed with eager vacationers who are interested in spending an extended period of time out at sea. However, the arrival of a global pandemic has made consumers think twice before committing to such a packed living arrangement for many days on end.
Worse yet, the Cruise Lines International Association announced earlier in March that all cruise lines originating in American ports are to suspend trips for at least the next 30 days. As of press time, just over two weeks have passed since the suspension was put in place, and the impact on cruise lines has been severe. On a year-to-date basis, Carnival’s stock (NYSE: CCL) is down about 72 percent. This drop is not quite as steep as Royal Caribbean, whose stock (NYSE: RCL) has shed over 74 percent on the year. Astonishingly enough, Royal Caribbean’s dive is still less than that of Norwegian; its stock (NYSE: NCLH) has plunged a whopping 80 percent over the same time period.
Unfortunately, the recently signed Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a record-setting stimulus bill which includes two trillion USD worth of aid to small businesses, everyday Americans, large corporations and many other entities, does not include any such aid to the cruise line industry. The reason: none of the Big Three cruise lines mentioned in this piece are incorporated in the United States. Even though Carnival, Royal Caribbean and Norwegian are headquartered in the United States, the CARES Act states that recipients of aid must be “organized in the United States,” as well as have a majority of employees based there. With incorporation locations of Panama, Liberia and Bermuda, the three respective cruise lines must fend for themselves in this turbulent time.
Moving forward, it is unclear if the Big Three cruise lines will receive any aid from future legislation. In a recent press briefing, President Donald Trump stated, “We are going to work very hard on the cruise-line business, and we are going to try to work something out.” However, the president has also made the claim that, “it’s very hard to make a loan to a company when they are based in a different country.” Until such a potential loan is made, the entire cruise line industry will continue to face rocky waters.