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FEATURE: Better for the industry if Norwegian Cruise Lines goes out of business?

PortandTerminal.com, May 5, 2020

Looking ahead, we’re betting that there will be too many cruise ships and not enough passengers. Someone is going to have to go.

MIAMI, FL – When you have too many lemonade stands and not enough thirsty people, Economics 101 teaches us that some stands will go out of business. That’s analogy sums up the situation the cruise industry finds itself in as it looks to its Post Covid-19 resurrection. Too many cruise ships, too few passengers.

Norwegian Cruise Lines bowing out?

Earlier today, Norwegian Cruise Lines announced that their ability to keep operating as a “going concern” was at risk. Put plainly, they are at risk of going bankrupt. The Miami-headquartered company said it does not have sufficient liquidity to meet its obligations over the next twelve months. That’s very big news coming from the third-largest cruise line in the world.

28 ships across a portfolio of 3 brands

Miami-based Norwegian operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. Those three lines have a combined fleet of 28 ships with nearly 60,000 berths among them.

Combined, the three brands have a market share of about 12.6% based upon revenue and had almost 2.5 million passengers in 2018 according to Cruise Market Watch.

Would it be better for the cruise industry if NCL went bust?

Yes. It just might be – and that is not in any way to minimize the pain and loss that would cause to thousands of employees that rely upon NCL for their livelihoods. It is worth noting here that the company employs over 32,000 hard-working people.

But something has to give. There are too many lemonade stands and not enough customers. To extend our analogy, we don’t think all of the customers are going to come back – not when they’ve seen how dangerous the lemonade can be.

The Cruise Industry and Covid-19

The cruise industry had been on a roll. In 2019, the industry was projecting 30 million passengers taking cruises on 290 cruise ships. Things were looking great.

Canadian passengers Chris & Anna Joiner ask for help onboard the MS Zaandam, Holland America Line cruise ship, during the coronavirus outbreak, off the shores of Panama City, Panama March 27, 2020. CHRIS JOINER/REUTERS

Then, COVID-19 hit the industry like a bomb. One cruise ship after another had passengers and crew fall ill with the virus. Thousands became infected, hundreds died. Many are still dying. The lawsuits are just getting started as customers and eventually, the crew members try to sue the lines for damages.

(We blamed the passengers many times and still do)

Over the past few months, we have all watched with shock as cruise ships were put into quarantine around the world. And then the shock turned to horror when the ships started to be turned away by ports scared of the disease that they carried. Gradually, we became accustomed to seeing photos of desperate passengers begging for help to get home. Some of us even started blaming the passengers for their stupidity in boarding the cruise ships, long after the risks in doing so had become clear.

But here we are today. Cruise ships are docked waiting for the time when they can set out to sea again. Carnival says that they are going to try for August. Maybe they’ll succeed, maybe they won’t. They’ll need ports that will welcome them. Many ports won’t.

But no matter when things finally turn around and ships start cruising again, its never going to be like it was in the “Before Times”. The world has changed after Covid-19.

How much damage has been done to cruise passenger confidence?

PHOTO: Carnival Cruise website home page (May 5, 2020)

It’s clear that there are plenty of people who are keen for the industry to get going again and will continue to take cruises as soon as they are able. The promotions and discounts that they are being offered even now by the cruise lines to get them out to sea again will be hard to say no to.

Now the big question is how many people will STOP going on cruises after everything that’s happened?

Two scenarios

In Scenario #1, let’s say that 20% of the existing cruise passengers go away and don’t come back to cruising. That would mean that when the industry is finally back on its feet, there will be 6 million fewer passengers per year (20% of 30,000,000 passengers).

If you think that the 20% figure is too pessimistic, let’s go with a lower number of people who say “no thanks” to cruising. In Scenario #2, let say that just 10% of the cruise passenger market saw enough photos like the ones below to have been scared off of cruising for good.

In Scenario #2, if there’s just a 10% drop-off in passengers who refuse to cruise again that will mean there will be 3 million fewer of them (10% of 30,000,000).

Passenger being taken off on a stretcher from a cruise ship
Passenger being taken off on a stretcher from a cruise ship

Circling back to Norwegian Cruise Lines

Remember what we saw earlier, in 2018, Norwegian Cruise Lines had 2.8 million passengers?

Suddenly when you start looking at the numbers and start thinking about the long term impact on the cruise industry of lost consumer confidence, removing Norwegian’s capacity from the industry might just be what it needs to get back up on its feet with some hope of profitability.

Without Norwegian gone, there will simply be too many cruise berths chasing too few passengers.

Warren Buffet last week divested Berkshire Hathaway from all of its airline investments, losing billions of dollars in the process. Warren Buffet is not someone who generally loses billions of dollars. Why did he do it?

“It is a blow to have, essentially, your demand dry up,” he said. “It is basically that we shut off air travel in this country. “The world has changed’ after Covid-19,” he said.

So now, do you think Warren Buffet would invest in Norwegian Cruise Lines? Neither do we.

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