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Monday, Apr 22, 2024

Foggy Seas Ahead for Valley Cruise Industry

On January 20, the Diamond Princess cruise ship departed from Yokohama, Japan with 2,666 passengers in tow for what was supposed to be a leisurely 14-day voyage around the South Pacific. Just days later, games, shows and buffets were canceled and guests quarantined in their rooms as reports began to circulate that a disembarked passenger had tested positive for a virulent, deadly virus that had broken out in China several weeks before. The ship rerouted back to Yokohama. There, Japanese health officials confirmed 10 active cases of COVID-19 onboard and instituted a two-week quarantine for the ship and its passengers. A week later, the number of confirmed cases had grown to 61. By Feb. 20, still under quarantine in Japan, the Diamond Princess had more than 500 confirmed cases of COVID-19. The World Health Organization said the ship accounted for more than half of the reported infections in the world outside of mainland China at the time. Diamond Princess is operated by Princess Cruises in Santa Clarita, a unit of Carnival Corp., which is headquartered in Doral, Fla. Later, nine more Carnival-owned ships and about 40 others operated by various cruise lines were devastated by COVID-19 outbreaks that killed dozens and left hundreds ill. The virus has wrecked financial disaster for the entire cruise industry. Since January 17, shares of Carnival Corp. have dropped 75 percent from $51.90 to $12.82 on May 6. Norwegian Cruise Line told investors on May 5 it had “substantial doubt” it could continue as a going concern because of the pandemic. The Valley has a concentration of cruise companies. Aside from Princess, the Valley is home to Viking Cruises in Woodland Hills and river cruise line AmaWaterways in Calabasas. Viking and Princess did not respond to the Business Journal’s inquiries by press time. River cruiser Regulators have prohibited international travel in an attempt to limit the spread of the virus, leaving Valley cruise lines to tread water for the foreseeable future. Operators have mostly cancelled cruises through July, in keeping with the Center for Disease Control and Prevention’s “no sail” order, which was extended in April. Nearly all are offering customers full refunds and free vouchers for future travel. AmaWaterways President Rudi Schreiner told the Business Journal his company is prepared for the worst-case scenario of a cancelled season, although he hopes for a better outcome. “I don’t count on (cruising by) July,” Schreiner said. “Maybe August.” AmaWaterways specializes in high-end river cruises, mostly in Europe with some in Africa. Schreiner said the European river cruising season begins in mid-March and runs through December – AmaWaterways doesn’t cruise in January, February or early March. When COVID-19 hit, the cruise line was about to kick off its 2020 season with two charter cruises scheduled to depart March 15 and 16. Schreiner said the first charter cancelled on March 12. The ship had already been outfitted with food, supplies and personnel. The next day, Congress announced a temporary ban on all travel to and from Europe, spelling an end to AmaWaterways plans for at least the first half of the season. Schreiner said the company, aside from dealing with refunds and rescheduling, is focused on marketing. “We are very active with video conferences. We do a lot of training,” he said. He added the pandemic has resulted in the closure of Fincantieri shipyards in Europe, which has delayed the construction of AmaWaterways’ next two ships: the AmaSiena, which was slated for completion by July, but has been pushed back to November; and the AmaLucia, which is now scheduled for delivery by March 2021. As for employees, Schreiner said most of AmaWaterways’ captains and engineers are based in Switzerland, where the government is paying 80 percent of salaries for people who cannot work due to the pandemic. AmaWaterways is paying the remaining 20 percent. Schreiner said roughly 220 AmaWaterways workers based in the U.S. are all still on the payroll and working from home. Industry comeback According to travel agent Andrew Kahn, director of business development at Casablanca Express in Woodland Hills, the logistics of a cruise ship – with dense crowds and an older target demographic – aren’t ideal for a quick recovery from the pandemic. “Unfortunately, that is the most concentrated population – you’re getting on a floating city!” Kahn said. “Until (COVID-19) is eradicated, the cruise industry is going to have a hard time.” He said cruise lines may be kept in a lurch longer than most industries, as it’s possible large gatherings remain prohibited even once travel restrictions are lifted and other industries reopen. In that situation, cruise lines would be forced to either operate at a fraction of capacity with full expenses or not at all. Kahn called the post-pandemic economy a “double whammy” for cruise lines. Consumers will have less money, but the ships will want to charge more to compensate for the dry spell. “Can you survive on a quarter of the people paying twice as much?” Kahn asked. “I don’t know.” Complicating matters for the industry is exclusion from the loan opportunities built into Congress’ $2 billion Coronavirus Aid, Relief & Economic Security Act, or CARES. These lending programs require borrowers to be incorporated in the U.S. and to have most of their employees located here. That presents a problem for major cruise lines, most of which aren’t U.S. companies. While heavyweights like Carnival, Norwegian and Royal Caribbean Cruises have large presences in U.S. harbors and as lobbyists in Washington D.C., they are incorporated in countries that have looser tax and legal regulations. Carnival, for example, bases its operations in Florida but is incorporated in Panama. Norwegian is incorporated in Bermuda; Royal Caribbean in Liberia. With zero revenue and no federal lifeline, how long can cruise companies last on cash reserves and credit facilities? Schreiner said AmaWaterways is well positioned to survive at least a year without cruising. “Our ships are paid off. We have no real liabilities. We have a solid financial basis,” he said. Because AmaWaterways cruises rivers and not international waters, resuming operations will depend on how individual European countries lift business and travel restrictions. Schreiner said countries such as Austria and Germany are already preparing to loosen social distancing rules and reopen the retail sector in a limited capacity for citizens and residents. He acknowledged it could take a little longer for European countries to open their borders to American travelers, which comprise the overwhelming majority of AmaWaterways’ clientele. Kahn, the travel agent, said he’s rebooking clients’ trips for November, December and January, hoping the health care industry finds a way to contain the virus by then. Carnival, for one, seems confident in its ability to rebound – the company announced on May 1 plans to start cruising by August, citing the expiration of the CDC’s no sail order. The CDC subsequently issued a public statement saying: “We are closely monitoring the situation on cruise ships while we review the cruise lines’ plans to prevent, detect, contain and respond to COVID-19 during the No Sail period. At this point in time, we do not have enough information to say when it will be safe for cruise ships to resume sailing.” Princess under fire Executives at both Princess and Carnival have come under fire for how they handled early COVID-19 outbreaks on their ships, including the Diamond Princess. The U.S. House Committee on Transportation and Infrastructure has opened an investigation of the company regarding its health and safety protocols. The committee, along with the U.S. Coast Guard and the CDC, sent a letter to Carnival requesting internal documents and communications related to its COVID-19 response efforts, as well as assurances about Carnival’s plans to improve health and safety measures. According to Bloomberg, the Australian government has also launched a criminal probe into Princess, particularly to determine whether the company misled authorities about an outbreak aboard the Ruby Princess, which docked in Sydney in mid-March. Spokespeople from Princess have publicly confirmed the company’s cooperation with the investigations. Carnival has received lawsuits from passengers alleging negligence. One suit came from a Tarzana couple claiming to be permanently disabled, having lost the senses of smell and taste after exposure to the virus on the Diamond Princess. The suit claimed Carnival is at fault because the company “took few precautions to ensure the health and safety” of passengers. Princess issued a public statement that it does not comment on active lawsuits. “Our response throughout this process has focused on the well-being of our guests and crew within the parameters dictated to us by the government agencies involved and the evolving medical understanding of this new illness,” the company said in the statement.

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