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Opinion: We know cruise will change as a result of COVID-19. But how?

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Written by Teijo Niemelä Teijo Niemelä

Category: Top Headlines Top Headlines

Published: 28 April 2020 28 April 2020

Written by Carolyn Spencer Brown

The cruise industry is in an unprecedented period. As the last ships still out on world cruises finally returned to ports in mid-to-late April, the entire business is in a complete halt. There are no more paying customers as a result of No Sail Order announced by the Centers for Disease Control over a month ago.

Because of the COVID-19 pandemic, every week, hotels, airlines and cruise lines are facing dramatic challenges that we've never seen before. In cruise's case, ports started to refuse access to cruise ships (and this was happening all over the world, even for those without passengers affected by the pandemic) in late February. Cruise lines have since gone dark; aside from ships with just crew aboard still trying to port, no one's actually operating voyages right now (in some cases, companies are telling us they won't resume any voyages until July or later).

The industry has had to shuffle more than just operating its existing ships. New ship debuts, typically meriting a huge celebration, are on hold too. Last month, Celebrity Cruises took delivery of its new Apex from a European shipyard as executives watched the procession via video sharing. And the usually ebullient Virgin Voyages, a brand new cruise line aimed at Millennials, accepted delivery of its first ship and put in mothballs for the time being. The pandemic has also interrupted European shipyards, many of which have closed down completely, for weeks, and which are only just re-starting operations.

Cruise travel has been through tough times during national and global tragedies and I've covered them all in various forms. There was 9-11, the Great Recession of 2008 and the advent of Norovirus. Ship-related accidents and malfunctions have attracted notorious press. COVID-19 is a different beast, and it's having a massive impact. I agree with the industry executives who tell me that's its more damaging than several past events combined.

And yet, cruise will survive. It will thrive, again, someday, and it will do so because travelers are passionate about this way of exploration. And because the cruise lines will do what they do best in times of extreme challenge: They will innovate and create ever-better systems, protocols and processes that will raise standards to even higher levels.

The irony here is that cruise lines voluntarily subject themselves to a rigorous and thorough health and sanitation inspections, something that hotels, airlines and resorts don't do.

A cornerstone of that effort is a 30-plus year partnership with the Centers for Disease Control's Vessel Sanitation Program. All ships that call at American ports undergo rigorous surprise inspections. These focus on key areas of hygiene, sanitation and safety, such as heating, ventilation and air-conditioning; kids' clubs; restaurants and galleys; pest management; housekeeping; swimming pools and whirlpools, potable water systems, medical centers. Cruise lines, which undergo two inspections a year (at least those who call at least twice at U.S. ports) pick up the tab for them. Cost? Inspections run from about $3,000 to almost $30,000, depending on ship tonnage. And that's per ship, per inspection.

Also singular to the cruise industry: Cruise lines report illness statistics when more than 3 percent of passengers onboard a sailing report feeling ill. You don't see those numbers from hotels, airlines and resorts because they haven't agreed to volunteer the information.

As with COVID-19, which has shaken almost every area of our lives since it began its tragic spread, nothing is normal. But we do feel there will be, when the time is right, a new normal for cruise travel, and some things will change.

Here's what we're prepared for.

Travelers will absorb more self-responsibility for their own health and well-being -- and that of the people around you. Personal hygiene practices will continue to be an obsession, and travelers will show more concern about how their own health affects people around them. Physical distancing has caught on, and I don't see a pullback there. And travelers who embark on trips who do show signs of illness will likely be subjected to further screening and may be denied boarding.

From the cruise line perspective, it will be necessary to establish new and ever more rigid protocols for promoting health and well-being. For cruise embarkations, we may be required to undergo a quick, thermal screening to test for fever. Look for tweaks in how companies sanitize and disinfect public rooms and staterooms. One executive tells us there could be new technology installed around ships that, like a sprinkler, could shower disinfectant, and that filtration and ventilation systems will be under greater scrutiny than ever. And if travelers are embracing physical distancing, so too will cruise lines. Look for new rules, especially on larger ships, to offer limits on capacity overall, and also for new limitations related to activities, entertainment and dining.

On cruise lines certified by the Cruise Lines Industry Association (CLIA), health and medical practices are already developed in conjunction with the American College of Emergency Physicians. Would you feel more comfortable traveling by ship if you knew that its existing medical facility was also in partnership with a major health organization, like Johns Hopkins Hospital or Cedars-Sinai to provide telemedicine via video? That's not even a new idea; one cruise line in the early aughts had just such a partnership. And these days, the advent of radically faster WIFI, like Carnival Corporation's OceanMedallion technology, could be a boon for partnerships created between cruise lines and on-shore hospitals so that travelers who fall ill and their onboard doctors could have real-time consults.

Onboard medical facilities could be expanded with isolation-oriented facilities in case of a contagious outbreak.

In so many of the conversations we have had with fellow travelers over the past few weeks, one of the biggest worries that dedicated cruise passengers have has less to do with falling ill. It's about the unprecedented reaction by ports to deny ships on scheduled calls. In the new normal, there needs to be a partnership between the industry and ports of call and their government entities, to establish a clear and safe protocol to prevent this from ever happening again. "This is the biggest thing," a cruise line CEO tells me. "It's a human rights mission. I think ports can do better.

And here is an idea for a re-start, at least as it applies to big ship cruising: Another cruise line executive tells us that he's imagining a scenario in which a cruise itinerary from Miami can bounce from one cruise line private island to another without ever visiting a commercial port on a seven day Bahamian/Caribbean itinerary. It could happen, should MSC, Royal Caribbean, Princess Cruises, Norwegian Cruise Line and Holland America Line agree to team up and rent out their own private islands to one another, for stops that could avoid, at least in the short-term, the need to call on mainstream ports and provide controlled on-land environments.

Crazy? Maybe. At this point, though, all ideas on the table are welcome.

Carolyn Spencer Brown has, for the past 20-plus years, been one of the cruise industry’s most knowledgeable journalists, first as a staff writer at The Washington Post and later as a longtime editor-in-chief of Cruise Critic. Over the past two decades she’s traveled on more than 300 cruises on ships big, small and downright tiny. An award-winning editor as well, her cruise stories have appeared in Conde Nast Traveler, Town & Country, and London’s Sunday Times. She is the chief content officer of Cruise Media, LLC.

Costa Smeralda, provision dragged Meyer Turku to deep 2019 loss

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Written by Kari Reinikainen Kari Reinikainen

Category: Top Headlines Top Headlines

Published: 28 April 2020 28 April 2020

Delayed delivery of Costa Smeralda, an LNG powered cruise vessel of Costa Crociere, together with provisions for further losses on the orderbook dragged Meyer Turku, the Finnish cruise ship builder, to a deep loss in 2019.

The company made a loss of €109.7 million last year, compared to a profit of €29.0 million in 2018, while net sales increased to €1.14 billion from €967.0 million.

“Ship project Costa Smeralda was delayed due to difficulties with the shipyard’s substantial ramp-up until today and the ship’s size & complexity. The losses are mainly related to delayed delivery of Costa Smeralda and reservations for the coming years,’ the shipbuilder said in a statement.

 

Meyer Turku abandons plan to double production

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Written by Kari Reinikainen Kari Reinikainen

Category: Top Headlines Top Headlines

Published: 28 April 2020 28 April 2020

Meyer Turku, the Finnish cruise ship builder, has decided to abandon its plan to double its production as the coronavirus outbreak has drastically affected the outlook, the shipbuilder said in a statement, adding that talks are I'm progress regarding possible new delivery dates of vessels on order.

“Our preparations have been for the future. Now unexpectedly that future has changed and we have to adjust to that new future. Instead of a further ramp-up from one to two large ships delivered per year until 2023, the estimation is now that Turku shipyard will in the future build one large cruise ship per year and not further ramp-up,” CEO of Meyer Turku, Jan Meyer, stated.

“The corona pandemic has changed the situation unexpectedly and totally. We are facing the fact that the corona-caused pause in cruising requires to stretch the order book. We are currently discussing the details with our customers. This new situation will force us to take painful adaptation measures to secure a sustainable future for Finnish cruise ship building and the network”, he said.

The exact changes to the building and delivery times of the seven ships in Meyer Turku order book - formerly reaching until 2025-  are still under negotiations with the shipyard’s customers,’ the company pointed out.

NCLH unveils plans to cut expenses, address liquidity and balance sheet matters

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Written by Kari Reinikainen Kari Reinikainen

Category: Top Headlines Top Headlines

Published: 27 April 2020 27 April 2020

Norwegian Cruise Line Holding Ltd (NCLH), the world’s third largest listed cruise shipping group, has unveiled plans to cut expenses and to address liquidity and balance sheet related matters in the aftermath of the COVID-19 outbreak

“The Company has swiftly undertaken several proactive measures to mitigate the financial and operational impacts of COVID-19. This action plan includes cost mitigation and cash conservation levers the Company has deployed to preserve and enhance liquidity and is part of an overall plan that, as described below, also contemplates additional sources of capital and liquidity,” NCLH said in a statement.

These measures include:

Reduced Operating Expenses

Meaningfully reducing cruise operating expense which includes reducing expenses associated with crew payroll, food, fuel, insurance and port charges.

The majority of ships in the Company’s fleet are currently transitioning to cold layup.

Significantly reducing or deferring marketing expense in the first half of the year.

Introduced a temporary shortened work week and reduced work hours with commensurate 20% salary reduction for shoreside team members.

Paused employer 401(k) match contribution.

Implemented a company-wide hiring freeze.

Suspended travel for shoreside employees across the organization.

The Company anticipates estimated ongoing ship operating expenses and administrative operating costs combined to range from approximately $70 million to $110 million per month during the suspension of operations.

Reduced Capital Expenditures

The company has identified approximately $515 million of capital expenditure reductions, comprised of:

$345 million, or a nearly 70% reduction of non-newbuild capital expenditures for the remainder of 2020.

Approximately $170 million in expected reduced and deferred capital expenditures for newbuilding related payments through March 31, 2021 which the company is currently finalizing. Upon completion, the company’s next newbuild related payments would not be until April 2021.

Improved Debt Profile

Export Credit Agencies (ECA) and Norwegian’s ECA lenders are working to finalize an industry wide initiative to grant a 12-month debt holiday to provide interim debt service relief for amortization payments and financial covenants.

The company has approximately $540 million of ECA-backed amortization payments due over the next 12-months, of which approximately $385 million of payments related to guaranteed financing by Euler Hermes Aktiengesellschaftthe official ECA of Germany, have already been deferred through April 2021 and associated credit agreements have been amended to incorporate this Debt Holiday. The Company is in the process of finalizing the deferral of the remaining approximately $155 million of payments through March 31, 2021 with its other ECA lenders.

Contractual optionality to extend $230 million Pride of America term loan by one year to January 2022.

Working with lenders and evaluating additional options available to defer or refinance certain of the Company’s existing debt profile.

Balance Sheet and Liquidity Position

In response to COVID-19, the Company secured a new $675 million revolving credit facility on March 5, 2020 and fully drew down on this new facility as well as its existing $875 million revolving credit facility beginning on March 12, 2020 for a total of $1.55 billion.

As at March 31, 2020 the Company’s total debt position was $8.6 billion. As outlined in the Improved Debt Profile section above, the Company is in negotiations to defer a substantial portion of the maturities due within the next twelve months. At March 31, 2020 the Company’s cash and cash equivalents were $1.4 billion and the Company believes it was in compliance with all debt covenants.

These cash conservation measures and the potential deferral of near-term debt amortization and newbuild related payments1, the company now estimates its cash burn to be on average in the range of, approximately $110 million to $150 million per month during the suspension of operations.

This includes ongoing ship operating expenses, administrative operating expenses, interest expense and expected necessary capital expenditures and excludes cash refunds of customer deposits as well as cash inflows from new and existing bookings.

 The company is also currently evaluating several additional strategies to enhance its liquidity position. These strategies may include, but are not limited to, pursuing additional financing from both the public and private markets through the issuance of equity and/or debt securities, which may include secured debt. The timing and structure of any transaction will depend on market conditions.

 “Our quick action to proactively and aggressively implement initiatives to preserve cash and enhance liquidity in this uncertain and fluid environment puts us in a stronger position to withstand the adverse financial effects of COVID-19,” said Mark A. Kempa, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd. “We will not only benefit from the actions taken to strengthen our liquidity profile but will also benefit from a period of reduced capital expenditures with no newbuild deliveries until at least mid-2022.  We will continue to evaluate all additional options to enhance liquidity.”

Outlook

The meaningful and rapidly evolving impacts from the pandemic, the temporary suspension of sailings globally and the uncertainty and fluidity of the ongoing situation, the company withdrew its first quarter and full year 2020 guidance provided earlier this year on its earnings call on February 20, 2020, which excluded known and unknown impacts from COVID-19.

As a consequence of these known and unknown impacts, while the company cannot estimate the impact on its business, financial condition or near- or longer-term financial or operational results with certainty, it expects to report a net loss on both a U.S. GAAP and adjusted basis for the quarter ended March 31, 2020 and the year ending December 31, 2020.

The COVID-19 outbreak has had a significant impact on the company’s financial position and results of operation. If the temporary suspension of sailings is further extended, the company’s liquidity and financial position would likely continue to be significantly impacted.