Will Pent-up Demand in the Cruise Industry Set Sail in 2021?

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

It's arguable that travel stocks were the hardest hit by the COVID-19, including cruise stocks. It's estimated that in Europe alone, over 200,000 jobs have been lost in the industry and dependent sectors since March 2020, and 18 cruise ships have been scrapped or sold. The sector lost an estimated $50 billion and 1.17 million jobs worldwide. 

But with vaccines rolling out and countries opening their doors to tourists once again, the cruise industry is angling for a revival. Travelers, tour operators, and investors are all watching carefully to see what happens next to cruise stocks.

Early pessimism was proved unfounded

Cruise ships already had a patchy reputation for health, and concerns over environmental damage and overtourism didn't help. And then the pandemic hit hard. In early 2020, there were a number of coronavirus outbreaks on cruise ships, causing multiple deaths and trapping passengers on board. In Australia, for example, the Ruby Princess was linked to over 900 cases and 28 deaths - a lot for a country with 910 total deaths. 

One survey in late 2020 found that 47% of participants didn’t trust cruise lines to look after them if something went wrong, and 67% were less willing to take a cruise as a result of the pandemic. Alongside concerns over traveler demand, cruise lines worried about how long it would be before countries opened their ports and permitted travelers to disembark. 

Allan E. Jordan, an industry expert, reported in February 2021 that "forecasts are that it might be at least a year before the industry has restored a meaningful portion of its operations." But just a couple of months later, the outlook looks much more hopeful. 

Some travel prophets predicted that the industry would have to rely on loyal cruisers while it rebuilt trust, but early booking data includes many first-time travelers. Older tourists haven't been avoiding ships, either. “We really thought older people would be more cautious. Turns out they want to get out of the house, too,” said Royal Caribbean CEO Richard Fain.

Arnold Donald, CEO of Carnival Corp, agrees, noting “Demand will not be an issue for us; people are ready to sail. The challenge is to do so safely and with the support from governments.” Research conducted by the Cruise Lines International Association (CLIA) found that two-thirds of people who have been on a cruise previously would go again within the next year, while 58% of new cruisers want to join one in the next few years. 

Vaccine rollout definitely helps. Cruise lines in the US have been fast-tracking vaccination for crew members, and the managing director of Silversea Cruises explained that swift vaccinations are the reason they were able to resume services to the Greek islands. 

Cruise lines are rebuilding trust

When it comes to enticing travelers back on board, trust and risk perception is everything. Cruisers are generally thought to be a risk-averse group, and cruise ships were referred to as "floating petri dishes."

Cruise line managers are aware that they need to prove their competence, and they're doing everything they can to stress their safety profile and deliver transparency. The Royal Caribbean, for example, established a Healthy Cruising Panel. The CLIA has released detailed policies for cruise ship operators, including cleaning and hygiene protocols, and lower capacities.

Companies are embracing technology to track passenger movements and enable contact-free interactions, assisted by the closed system on cruise ships. "On a ship, tracking can have almost totalitarian features, without passengers being very aware of it," cruise analyst Thomas P. Illes says. "Epidemiologists on land would love to have such track and trace capacities." Royal Caribbean rolled out mandatory waterproof bracelets for guests and implemented surveillance tech, in the form of facial and body recognition. 

Cruise lines also accept the need to offer flexible booking policies, raise on-board healthcare provision, and operate with transparency around the measures they'll take to deal with the "inevitable" cases that will appear on board. 

It's clear that there's a pent-up demand for cruise trips among consumers. Country restrictions and health guidelines, not demand, appear to be dictating the pace of reopening. 

The first signs of revival

Limited cruises have been taking place in parts of Europe, Asia and the South Pacific since July 2020. Although only around 400,000 passengers and crew took part in 200 sailings, these "cruises to nowhere" are being touted by the CLIA as proof that it's possible to run coronavirus-free cruises. 

In December, Royal Caribbean’s Quantum of the Seas began operations out of Singapore, TUI Cruises, an affiliate of Royal Caribbean, has been sailing three ships in and out of the Canary Islands since November. The Royal Caribbean is taking bookings for cruises in the Mediterranean, Asia-Pacific, around the British Isles, and to the Bahamas for summer 2021; Norwegian Cruises has a trip planned for the Mediterranean in July; and Carnival Cruises looks forward to restarting cruises from Texas and Florida in July. 

There's still uncertainty around cruises departing from the US, because the CDC hasn't agreed to blanketly reopen ports, but the signs are positive. In May 2021, the CDC approved simulated cruise trials to test conditions, and invited cruise lines to apply for conditional sailing certificates. Royal Caribbean received approval on May 25th, followed by Carnival on May 28th. Both cruise operators have trips planned from the US for July, and Norwegian plans to sail to Alaska in August. 

The first ship to leave a US port this year on a revenue-raising run is a Royal Caribbean-owned Celebrity Cruises trip, heading to the Caribbean on June 26th. It's received approval to sail as long as the crew and passengers are 95% vaccinated.

Investors are taking their cue

Following a catastrophic year-plus, some investors may see cruise ship stocks as worth a buy. Sailing approvals for the Royal Caribbean and Carnival lines boosted stock performance for the sector as a whole, and those cruise lines which survived may have emerged stronger.

Some industry insiders are discussing the potential for the sector to come back even better, having used the break to improve the environmental profile of their ships and develop sustainable tourism policies for the most over-visited destinations like Dubrovnik and Venice.

The Royal Caribbean, in particular, has weathered the coronavirus storm relatively well. Although it announced a net loss of nearly $5.8 billion in 2020, that was lower than predicted and shares rose by about 8% over 5 trading days at the end of May.  Consensus estimates indicate that ticket sales for 2022 amount to around $10.1 billion, only slightly below the $10.9 billion in revenue the company posted in 2019. Crucially, the company has plenty of liquidity for the foreseeable future, having raised approximately $9.3 billion in new capital. 

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The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.