- The cruise industry has been preparing for disruption beyond August.
- According to one analyst, large cruise ships require 30% capacity to turn a profit.
- There is no shortage of demand of people anxious to book a cruise.
As major U.S. cities grapple with a resurgence of coronavirus cases coinciding with the reopening of restaurants and bars, some are thinking the cruise industry will be forced to sit on the sidelines even longer. Even if this is the case, the industry isn’t in peril — just yet, according to Wedbush analyst James Hardiman.
Cruise dates pushed back
Cruise stocks have pushed back their resumption dates from July to mid-September and it may be delayed even again, Hardiman said on CNBC’s “Worldwide Exchange.” But since cruises put a halt to their departures, management has been approaching the near-term challenges as if it would last “significantly longer.”
Nevertheless, cruise companies have been active in bolstering their in preparation for a “much longer” pause, according to the analyst.
Socially distant cruises can happen
To many people, a cruise is essentially a floating restaurant and bar and this begs the question if cruise lines can recreate the same level of entertainment with social distancing measures put in place. According to Hardiman, this can be done, and even at a profit for cruise lines as a minimum of 30% of total capacity is required for a profitable journey.
Granted, cruises will certainly have a different look and feel to them, most notably a new capacity limit, the analyst said. But cruise companies can prioritize their largest ships that come with lower break-even points and offer guests superior public space per passenger to help spread out.
Cruises thrive on offering guests a memorable experience with entertainment shows, music, and much more. Even as cruises drastically scale back on the value-added benefits per government regulation, there will be no shortage of customers wanting to go on a cruise vacation.
This is a “surprise to a lot of people” given a misconception that cruises are near the end of everyone’s wish list to return.
There is a myth that cruise lines can circumvent any U.S. government rules and regulations since the ships are flagged in foreign countries, like Panama. The U.S. government, especially the Centers for Disease Control, exerts “significant power” over the industry related to how cruises operate, the analyst said. Other governing borders have the power to force ports to hold ships at bay.
Adding to the regulatory difficulties, cruise ships need to be in compliance with laws that are local to where the ship docks. Failure to be fully compliant could result in passengers finding themselves stranded in the sea for an extended period of time.
“That’s a real factor for consumers,” he said.