No One Wants to Be Stuck on the Next Virus-Hit Cruise
(Bloomberg) -- Edgar Chan, a 28-year-old software engineer from Hong Kong, was among the thousands quarantined on the World Dream cruise ship off the city this month after passengers on an earlier cruise tested positive for the lethal new coronavirus.
He won’t be taking another vacation at sea any time soon. Being stuck on what local media called the “zombie ship” was annoying, and worrying about getting sick was frightening. “Getting a cold on a cruise is normal, but getting a virus, a highly infectious disease, is horrible.”
The cruise industry’s fear is that Chan is far, far from alone.
Asia -- Chinese travelers in particular -- was supposed to be a great growth market. But across the region, cruise line operators have had to cancel departures and in some cases keep guests on board, often without ports willing to let them disembark. Coverage of passengers being quarantined on ships such as the World Dream, run by Genting Hong Kong Ltd., and Carnival Corp.’s Diamond Princess have been broadcast around the globe, creating a public relations disaster. Another Carnival boat, the Westerdam, was rejected by multiple ports before being accepted by Cambodia on suspicion there could be a virus case on board.
“This is terrible for the cruise industry,” said Christopher Muller, a professor at Boston University’s School of Hospitality Administration. “In the new markets of Asia, the rebound will take longer since the overall market is not as mature and built up.”
Royal Caribbean Cruises Ltd., the industry’s second-biggest player, said on Thursday that it had canceled 18 sailings in Southeast Asia, and if it’s forced to eliminate all its excursions there through April, it could cost the company $1.20 per share in earnings this year.
The comments echoed those of Carnival, its bigger rival, which said on Wednesday that its earnings this year could fall as much as 65 cents per share, under similar circumstances. Carnival had about 4% of its capacity in China in 2019 -- and was hoping that would grow to 5% in 2020, according to a public filing.
On Sunday, Hong Kong authorities allowed the 3,600 passengers to disembark the World Dream, while on the Diamond Princess, which is idling in Yokohama harbor, Japanese authorities have diagnosed 218 cases of the virus, including 44 new cases on Thursday. About 3,500 people are being kept in quarantine aboard the cruise liner, and health authorities are set to let high-risk passengers who test negative off the ship.
Estimating the potential impact to company earnings at this point is nearly impossible and that won’t change until the coronavirus outbreak is over and media coverage of the industry’s troubles ends, Instinet analyst Harry Curtis told his clients this week.
Making matters worse for the industry, the crisis is coming during the “wave” season, which is when cruise lines see most of their bookings for the coming year.
Wait and See
“It is a bit early to prophesize about long-term impacts,” said Ross Klein, a professor who has done extensive research on crime, viruses and other bad things that happen on cruise ships. “We can only watch to see how deep the problems go and how the industry is effected in the short term.”
Just a few years ago, cruise line operators with long-established customer bases in the U.S. and Europe began targeting Asia and its growing ranks of middle class consumers. The number of ships in the region rose to 79 last year from 43 six years earlier, according to the Cruise Lines International Association.
Passenger capacity in Asia topped 4 million in 2019, the trade group said. That was up from 1.51 million passengers in 2013.
The Chinese market has proved tough to crack, however. Last year, Norwegian Cruise Line Holdings Ltd. moved its ship, the Norwegian Joy, from China to Alaska. The vessel had been designed specifically for the Chinese market, with tea rooms and other amenities appealing to Asian guests, but they didn’t turn out in the numbers that Norwegian had anticipated.
Cruising has survived bad publicity in the past, including the wrecking of Carnival’s Costa Concordia in 2012, which killed 32, and an engine fire aboard the Carnival Triumph the following year, which left passengers stranded at sea without plumbing while millions at home watched what cable TV news dubbed the “poop cruise.”
Passenger volumes continued to rise in spite of it all, with the industry welcoming a record 30 million guests worldwide last year.
The industry will likely take a financial hit only from the canceled sailings and depressed bookings in Southeast Asia, said Stewart Chiron, a cruise industry commentator and travel agent. “Other destinations are sailing full,” he said in an email from the Regal Princess ship in Jamaica.
Given the newness of the Chinese market, that’s where the impact could be most severe.
Ingrid Leung, owner of Incruising Travel Asia Ltd., has specialized in booking cruises for people in Hong Kong and Macau since 2008. She usually sees just a handful of cancellations in a year, because most people go to great lengths to plan and pay for trips.
But she said she has had 10 cancellations just this past month. “That’s very, very unusual for us.” Bookings for sailings in the spring and summer have also taken a hit.
“I was hoping to expand in 2020,” Leung said. “But it’s not going to happen now.”
She said she’s not giving up though. “People are forgetful. If we can survive in the next three months, if the coronavirus situation gets better, people will start booking again.”
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