Cruise Lines Race to React to Coronavirus

Costa Atlantica

The early 2000s and the SARS virus sent Asia-Pacific operators scrambling to move ships, and the same may be about to play out as a number of brands operating in the Chinese market are reacting to the outbreak of the Coronavirus in China.

In a prepared statement, Astro Ocean Cruises said it is offering full refunds to any passengers that have a fever or have been diagnosed with the virus. In addition, for groups departing from Wuhan, where most cases have been concentrated, refunds are also on the table if guests cannot join the trip due to “pneumonia-related management measures.”

The company also said medical personnel that are unable to travel are also eligible for refunds or have the option to change their sailing to a future date.

Costa also issued a statement, saying it was working with port authorities to strengthen passenger screening procedures for guests that may have a fever.

The Italian brand is also modifying cruise policies to allow for full refunds for guests that have the virus or have a fever; as well as any guest from the Wuhan area; and similar to Astro Ocean, medical staff that cannot travel due to work commitments.

Carnival Corp. 2020 Outlook

Carnival Corporation provided adjusted earnings guidance for 2020 on today’s Q4 and year-end earnings call from $4.30 to $4.60 per share, compared to 2019 adjusted earnings of $4.40 per share.

Carnival President and CEO Arnold Donald said that he expects cruise revenues to be up approximately 5 per cent on capacity growth year-over-year of 6.6 per cent.

At this point, he said, the company is entering 2020 with a record booked occupancy position but at slightly lower prices.

Donald noted the headwinds Carnival has faced this year, some of which will continue into 2020, including the impact of Cuba being off-limits to cruise calls, events in the Arabian Gulf, Hurricane Dorian, unscheduled drydocks and ship delays, compounded by a decline in market demand in Continental Europe, particularly Germany, while Southern Europe is also challenging.

Noting these as “unusual events,” Donald said they had had a $0.23 negative impact on 2019 earnings.

In order to improve the market situation and accelerate demand growth in Southern Europe, Donald said that two older ships are being removed from the Costa fleet in 2020, following the recent introduction of the new Costa Smeralda. He said the new ship is much more efficient than the ships being removed.

In the UK, Carnival has been able to grow revenue yield despite Brexit, and Donald noted that P&O Cruises’ New Iona is looking at a significant premium over other ships on comparable itineraries.

In North America, the Caribbean is strong and so is Alaska. However, Alaska is seeing what he called an over-concentration of capacity and will need to absorb another industrywide capacity increase of 10 per cent in 2020, on top of a 15 per cent capacity increase in 2019.

As for China, Donald said Carnival will focus on its new joint venture cruise line. Meanwhile, he said, Costa had a good year in China in 2019 and looks forward to another good year in 2020, with more direct business, but is also happy with its charter model.

Carnival will essentially have six new ships in six different markets for the full year in 2020, starting with the Carnival Panorama, which just entered service on the West Coast, the Costa Smeralda in Southern Europe; P&O’s Iona in the UK; the Enchanted Princess in Europe and North America; the Mardi Gras in Florida; and the Costa Firenze in China.

According to Donald, Carnival is also accelerating marketing and media spend in all of its key markets to drive demand in 2020.

The cruise industry view of Trump’s order to leave China

Image result for royal caribbean in china

With President Trump “ordering” U.S. companies via Twitter to leave China, and suggesting they return home, one wonders what would happen if he turned his attention to the cruise firms headquartered in Miami.

Could he “order” them to bring their Shanghai-based ships back to U.S. waters? Or to stop building their $1 billion ships in Europe?

Of course, the first obstacle is that none of these companies are legally incorporated in the U.S. But set that aside for a minute. They’re certainly American companies in other respects.

Norwegian Cruise Line Holdings CEO Frank Del Rio appears to have beaten Trump to the punch by ordering home the Norwegian Joy to sail in Alaska this summer alongside its doppelganger, the Norwegian Bliss.

Of course, Del Rio acted for business reasons and not out of any animosity towards China or need to chastise Chinese leader Xi Jinping for raising tariffs.

If Royal Caribbean International or Princess Cruises did pull their ships from China, they would probably be rewarded on Wall Street, which has a much easier time analyzing profits in the short term than investments for the long haul, which the China market needs.

But the cruise ship example shows how perverse the strategy of “finding an alternative to China” can be for many industries. Calling home the ships in the China market doesn’t mean they would sail from Seattle to San Diego full of happy Americans.

In fact, American law would prohibit them from being used that way. The ships would go back into the international mix of itineraries that have some ships departing from Miami and New York, but others from Barcelona and Southampton.

The kingly notion of imposing tariffs and directing private business decisions from the throne was losing viability when economist Adam Smith attacked it in the 18th century. It may have some political appeal but in economic terms, the world has passed it by.

For the same reason, building big cruise ships in America – no matter the cost – makes no particular sense either.

As many companies manufacturing in China are finding out, the key in the 21st century to making things reliably and at market prices is an intelligent and at least somewhat skilled workforce and a robust network of proven contractors that can accommodate just in time delivery.

That’s what the European shipyards that make cruise ships have. And by operating within the framework of the European Union they can bring to bear a workforce that while not as large as China’s is larger than the U.S’s.

Yes, China may be cheating on some of the economic terms and conditions that make free trade a win-win proposition. But going back to the idea that each country should manufacture everything on its own makes about as much sense as booking your next cruise on the Nina, the Pinta or the Santa Maria.