Operators are confident of bringing capacity back onstream, but guests will want the real experience, writes Maritime Strategies International director Niklas Carlen
A restart to anything like full operations can’t come soon enough for an industry that has effectively been closed for business during the last 15 months. The financial position of the cruise lines is precarious given substantial debt levels incurred from recent and planned fleet expansions, in addition to the extensive fundraising required to survive the current crisis.
So bad is the situation that the net revenue losses in 2020 and Q1 2021 alone almost match the accumulated net revenue gains of the preceding five-year period.
The crisis has in turn forced cruise lines to extend credit lines, defer debt repayments and take on more debt to survive. By the end of Q1 2021, the three leading cruise groups were carrying approximately US$65Bn of debt, with Carnival accounting for almost half of that. Consequently, the aggregated debt-to-equity ratio has moved from an average of 0.97 during 2011 to 2019 to 2.31 in Q1 2021. Little wonder the major ratings agencies have downgraded cruise equity to junk status.
The scale of the problem facing the cruise lines (and the entire tourism sector) was laid out by the UN World Tourism Organisation earlier this year when it pointed out that two-thirds of the world’s destinations were still either completely (32%) or partially (34%) closed to international tourists.
The crisis has also triggered a change in travel behaviour with short trips, domestic tourism and staycations gaining in favour. Given the uncertainty around travel destinations and potential restrictions, last minute bookings have also increased.
Even assuming we see a partial recovery this year gathering strength from 2022 onwards, debt burdens will weigh heavily on the sector for some time to come. Gradual reactivation of laid-up vessels will bring additional costs, as will preparations for socially distanced cruising, while revenues are likely to be impacted both by Covid-related restrictions on vessel capacity and competition for passengers with other lines as well as non-cruise holiday alternatives.
Although pressure from scheduled debt repayments should increase from 2023-24 onwards, we should expect to see some rearrangement of this as the recovery begins and cruise operators get greater clarity around demand prospects.
According to MSI’s calculations, the big three cruise groups should have approximately 45% of their capacity back in operation by the end of this year, equivalent to approximately 20% on an annual average basis.
This is based on data published by JP Morgan in early June, which compiles start-up dates and deployment on a vessel-by-vessel basis for the three big cruise groups (excluding the RCL/TUI joint-venture brands).
MSI’s analysis is based on pre-pandemic predictions of lower berth capacity and as such does not factor any negative adjustments to berth capacity because of Covid-related social distancing requirements.
Carnival claims to have US$2Bn in deposits for cruises scheduled over the next two years but, to turn those deposits into full payments and avoid cancellations, many customers will need to be reassured about the kind of cruise experience they will be offered. Masks and social distancing could turn out to be a deal-breaker for some.
But, assuming the vaccination rollouts continue to reduce the impact of the virus and are extended to more countries around the world, there is no reason why the cruise recovery should not accelerate through 2022 so that 2019 levels are largely matched in 2023.
Riviera Maritime Media will provide free technical and operational webinars in 2021. Sign up to attend on our events page