Bermello Ajamil & Partners: Economic Impact & Possible Deployment Scenarios for the North American Cruise Market
While the North American cruise industry continues to languish, there have been some positive signs this past week that the global cruise industry is stepping forward with more deployments of “intra-country” sailings such as those that have been underway in Singapore, Taiwan, Canary Islands, Japan, and Italy/Malta for some time.
Additional Mediterranean cruises starting next week on the Costa Smeralda and Aida Perla will bring the total to 24 ships sailing of the more than 300 cruise vessels in the world fleet. Since the first ships resumed last year, it is estimated that some 270,000-passengers (~1%) have cruised of the more than 27-million plus that in the absence of the pandemic would have enjoyed a cruise holiday somewhere in the world in 2021!
Other key deployment news includes the following:
The U.K. approved domestic cruises to resume as early as May 17 – Since the announcement, P&O, Cunard, Viking, and Fred. Olsen confirmed they will restart cruises from the U.K.
Royal Caribbean announced Odyssey of the Seas will offer domestic cruises from Haifa, Israel from May – At this time, only Israeli residents living in Israel and who are fully vaccinated will be able to sail
Crystal Cruises announced the Crystal Serenity will sail Bahamas-only voyages in July – the ship will sail week-long itineraries that call only on Bahamian destinations, round-trip from Nassau or Bimini
The largest cruise market in the world, North America, remains idle due to the long-awaited Technical Guidelines from the CDC. To date, the three major North American cruise corporations including NCLH (3 brands / 28 ships / 9 new ships on order); RCG (5 brands / 58 ships / 16 ships on order); and Carnival Corporation (9 brands / 93 ships / 14 ships on order) that account for 85% of the world’s cruise passengers have only been able to dip their toes back in the water in Asia and Europe to date.
The vast majority of their fleets sit idling off the coast of the US waiting for the green light to conduct Simulated Voyages and then Conditional Sailings from US homeports to offer short cruises (less than 7-days) to places such as the Caribbean, Mexico, Hawaii, Alaska, and Canada & New England.
As they’ve waited for the CDC’s guidance, these companies, combined, have accumulated more than $68-billion in total debt and are burning more than $1-billion per month to maintain the readiness of their cruise vessels to sail. At the current spending level, which will inevitably increase once vessels are allowed to fully prepare for the Conditional Sailings, they have between 14 – 18 months cash on hand; all with limited to no income.
Based upon our assessment of current conditions including the CDC‘s lack of effort in assisting the industry to sail and the Canadian ban on cruise ships into 2022 it is likely that the key cruise regions of Alaska and Canada & New England will not see the larger non US-flagged cruise vessels until April 2022.
Thus, these two regions and the communities that rely on tourism for their livelihood will go more than 2.5 years without cruise tourism – no cruise generated jobs or income for the small businesses, people, and towns. The CDC framework is merely a veiled “No Sail Order” as the cruise industry is the only business in the US to be regulated to such an extent as part of the Covid-19 pandemic.
We believe it will take the industry at least 90 – 120 days from when the CDC provides technical guidance to conduct voyages and sail once again; in the meantime, tour operators, retailers, restaurateurs, venues, and thousands of seasonal workers are in limbo. By example, due in part to the geography of the ports, for Alaska, it takes time and a huge effort to get the “cruise tourism machine” rolling. A switch cannot be flipped on July 1 to open the ports and ready the tourism products. Supplies must be ordered and shipped; employees hired and trained; equipment and venues overhauled and certified ready for use.
US Senators Murkowski and Sullivan introduced the Alaska Tourism Recovery Act to put aside the Passenger Vessel Services Act (PVSA) restrictions for cruise ships thereby bypassing Canadian ports on Alaska cruise patterns. This seems unlikely to move forward in time to allow for a full Alaska season when politics, CDC, crewing startup, and other issues are also factored in.
As noted the impacts of no cruise tourism for what could be 2.5 years to communities in these destinations is devastating. Per the Federal Maritime Commission’s “Covid Impact on the Cruise Industry” published in October 2020, a single Alaska cruise season is worth ~$1.24-billion and supports some 22,000 jobs. By the time the tourism industry regains its Alaska footing in 2022 more than $2.5-billion in economic impact will be lost. In real terms, the impressions will be felt longer-term as tour operators, retailers, and communities cannot sustain the losses and will be gone when visitors return. Similarly, for the Canada & New England cruise ports, most have not seen a vessel since November 2019 and likely will not until May 2022.
For the 36 Caribbean destinations that rely heavily on cruise tourism as a major governmental funding source for essentials from utilities to schools, the impact outlined in the 2017/18 BREA/FCCA Caribbean Economic Impact Study is nearly $3.4 billion in direct expenditures, 79,000 jobs and $903 million in employee wages which are now lost each year cruise ships are not calling!
Where Do We Go From Here?
From our perspective, it is unlikely for cruise to startup in July or even August from US ports; and, it is likely that cruise ships won’t sail until the US CDC determines that enough of the population has had vaccines and transmission/hospitalization rates are extremely low overall to only then allow the pathway for sailing in the US to move forward. Cruise restart does not appear to be a priority. In addition, it appears that the CDC protocols are also influencing the behavior of the Canadian health authorities and Transport Canada in their guidance.
Thus, with the majority of cruise ships not having set sail in over a year and continuing debt accumulation being a long-term burden to growth, the best hope for cruising to resume on a larger scale is the deployment of ships into the Caribbean ASAP; using key homeports with adequate airlift and charters to feed the market need.
Crystal Cruises announced it would deploy Crystal Serenity on all-new weeklong itineraries departing from, and exclusively visiting, the Bahamas. The seven-day cruises begin July 3, 2021, and run into October; departing from either Nassau or Bimini, and calling on Harbour Island, Great Exuma, Long Island, and San Salvador Island.
It’s a great first step in moving the North American industry forward and bypassing the onerous CDC rules. The Bahamas works great for small vessels on intra-country cruises where vaccine rollout is high, COVID transmission is low, and/or governments are open for cruising.
Many Caribbean nations appear to be delighted to welcome cruise visitors back to restore and help reactivate local tourism industries, as long as cruise lines and the communities work together to ensure a safe and healthy experience for all. Opening up the broader Caribbean to cruising as quickly as possible could provide relief for both the destinations and cruise lines. Cozumel, Barbados, Antigua, Jamaica, Guadeloupe, St. Lucia, and the Dominican Republic could all provide homeport opportunities for key cruise brands.
This is an opportunity for the Americas Cruise Tourism Task Force made up of over 40 different Caribbean countries to roll out Key Guidelines to ensure cruise lines can have a safe return to cruising in the Caribbean, sooner rather than later.
One could continue to wait for the CDC to finally open the gates to the pathway to sail and perhaps return to cruising in the late fall, but if the Caribbean destinations can open and work with the cruise lines to generate economic and social impacts for these countries using safe health protocols, then it should be undertaken now before the effects to these communities damage regional cruise tourism well into the future.
Once cruising in the Caribbean is underway and successful, a transition to sailing from the major US homeports in the peak Caribbean season should be an easier mission. Additionally, the Caribbean and cruise operators may also find some new synergies and opportunities to further grow new sectors of the market and provide for enriched tourism prospects into the future.
As Benjamin Franklin once said, “Out of adversity comes opportunity.”