A lot of the questions surrounding the turnaround for cruise lines are based on the passenger perspective. Will Carnival (CCL 5.04%) (CUK 4.95%), Royal Caribbean (RCL 1.14%), and Norwegian Cruise Line Holdings (NCLH 4.06%) be able to fill their ships again at the other end of this pandemic crisis? How will the experience change? How deep will the discounts be to woo new and former customers as the negative fallout plays out?
But a side of the story that really isn't being discussed is the crew issue. Did you know that there are roughly 100,000 crew members stuck on cruise ships that are still sailing just outside of U.S. ports? They remain largely confined to their small cabins as the cruise lines negotiate the terms of returning the largely international workforce to their respective homes.
It's been that way since the industry shut down in mid-March. They are stuck, and in a handful of cases dying from COVID-19. Your bullish turnaround thesis has likely centered on how long it will take for cruise lines to get back to full ships with passengers paying full fares. It's time to start asking who will be working these ships and how much will they cost.
Will future cruise passengers have to be their own waiters? Image source: Royal Caribbean.
Uncharted waters
Carnival, Royal Caribbean, and Norwegian are in a standoff with the U.S. Centers for Disease Control and Prevention (CDC) to repatriate the 100,000 crew members who can't leave their ships. The CDC is requiring costly private transportation to return the trapped hires to their respective countries, and cruise lines have refused to be accountable for the process, according to Thursday's Miami Herald.
The matter will be resolved one way or another. The cruise lines eventually need to get these ships cleared out, cleaned up, and put back into service at some point later this year. But how many of these crew members do you think will be eager to get back on these floating petri dishes? If you think the horror stories and percolating class-action lawsuits were bad among the passengers who disembarked more than a month ago, can you imagine what the fallout will be for the crew members still stuck at sea?
The turnover is going to be pretty colossal, and then the question becomes who will take their place. Carnival, Royal Caribbean, and Norwegian basically operate out of Miami, but they are registered in different countries for the kinder taxation rates. Roughly 95% of the crew members are not U.S. citizens, since the industry relies on the cheaper labor it can score in countries with weak economic opportunities.
The recruiting narrative is pretty consistent. Foreigners sign at least a six-month contract to provide for their families better than they could back home. Traveling and meeting people from all over the world make it an adventure with a paycheck. Crew members have been through weather disruptions and short-lived illness outbreaks, but they have never been through a situation as prolonged as this, where the cruise lines themselves have mishandled the outcome.
Working on a cruise ship is not going to have the same opportunistic appeal that it had before the industry shut down seven weeks ago, and the horror stories will trickle back to the countries that the cruise lines lean on for crew members. One can argue that the industry is trying to do right by its displaced passengers, but it's a lot harder to justify the situation with 100,000 hires on what are essentially floating prisons at this point.
Shares of Carnival, Royal Caribbean, and Norwegian have started to come back, and eventually some passengers (if not most) will do the same once the recessionary concerns and negative headlines subside. Staffing future cruises will be the real challenge, and it may prove to be more challenging and expensive after everything that the industry is going through right now. If you're only looking at the top line of the industry's turnaround, you may want to be more vigilant on the turmoil taking place on the lower decks of this story.
