The cruise line industry is closing in on taking a gap year. Carnival's (CCL 3.57%) (CUK 3.71%) Princess cruise line announced on Wednesday afternoon that it's suspending nearly all of its cruise sailings until mid-December. Only its sailings in and out of Australia will be resuming operations earlier, and even those restart dates are being pushed to November.
Nobody wants to get back to cruising more than Carnival, Norwegian Cruise Line (NCLH 5.39%), and Royal Caribbean (RCL 3.55%). All three of the leading cruise line operators are losing a lot of money during the lull. Passengers booking and rebooking sailings are getting frustrated with the false starts. Crew members are likely seeking other lines of work. Nobody wins when sailing dates get pushed out -- and that includes shareholders.
Image source: Carnival Corp.
The love boat
Princess -- the cruise line behind the iconic Love Boat show in the 1980s -- is seemingly taking a conservative stand. Parent company Carnival's namesake line as well as Royal Caribbean and Norwegian Cruise Line are still hoping to start entertaining passengers as early as October. However, we've seen the industry do nothing but kick this can down the road. Every few weeks it seems one the major players flinch and the others follow suit.
If Princess is able to resume sailing by mid-December, it will have been more than nine months since it became the first cruise line to suspend its operations. It doesn't have to end here. In a few weeks, will we be talking about 2021 as the new restart date for the industry?
Sticking to the new mid-December date matters. The end of the calendar year is when high-priced holiday getaways kick in, and no cruise line wants to blow its peak travel season after a lost summer. However, this is ultimately out of their control. The pandemic is still a threat, and travel restrictions as well as current quarantine requirements would make it a challenge to secure global passengers even if the ships were cleared to sail again.
The good news is that Carnival, Royal Caribbean, and Norwegian Cruise Line have been saving for a rainy day since the industry's mid-March interruption. They have raised billions apiece, presumably enough to get through this prolonged downturn. They can raise billions more if the well runs dry. However, it's not as if the need for liquidity will end the day passengers start sailing again. Cash flow concerns will linger, especially with so many passengers sailing on cruise credits for cancelled sailings.
Consumer demand may also be slow to come around until the pandemic is completely eradicated, and the industry is already scaling back on their fleets. There's also a price to be paid for all of the money that they've raised, and the higher interest expenses will raise the bar of profitability.
For now the news is not encouraging. New resumption dates keep getting drawn in the sand. No one is generating sustainable revenue if sailings keep getting nixed, and that makes this one of the riskiest niches in what is already one of the riskiest market sectors. Getting back to business this year will help make a lot of things easier.
