How long can the cruise industry stay afloat?

Luis Santos May 20, 2020
How long can the cruise industry stay afloat?

As Seychelles bans all cruise ships until 2022 in response to coronavirus, the survival of the industry itself is at stake.

Effective immediately, the news from the paradise island may have, if you excuse the bad-taste pun, a titanic effect.

Cruise company profits have already tumbled a mind-boggling 80 per cent this year, as reported by the Financial Times. The pandemic could have an unimaginable impact on the industry.

While bitterness flows daily in the leisure and tourism industry, cruise lines are scrambling for survival. Silversea reported it has gone from receiving about 20 booking cancellations a day to “thousands”.

Desperate for liquidity

Wells Fargo analyst Tim Conder reported on Royal Caribbean Cruises’ recent note to investors stating it “still needs cash”.

The company said it would require between $2.5 billion and $3 billion to “weather a ‘no sail’ scenario” until the end of 2021. Conder wrote: “We expect the raise to occur in the next two to three weeks and lean towards convertible debt and equity.”

Conder estimated with roughly $2.3 billion of cash in its balance sheet, allowing for ten months of liquidity during suspended operations, the company’s ships at bay would run at a cost of $3 million per vessel, per month.

Hot, warm or cold lay-ups

Forced to adapt quickly, every cruise company faces the scenario of hot, warm or cold lay-ups.

A hot lay-up sees companies retain full deck and engine crews. It means staff will be ready to return to service as soon as good news is spotted on the horizon. This scenario sees companies looking to return to service within a few months.

Keeping ships at warm lay-up is a simple equation – fewer crew and reduced routine maintenance. In this scenario, estimates for a return to service are about 12 months.

A cold lay-up means having a ship out of service for several years. Crews are cut to a minimum to monitor safety and security.

New rules regarding guests

Social distancing and hygiene measures will be no different when it comes to cruise lines.

Onboard protocols recently published by riverboat operator Scylla may become the new norm. New moves will include guests having to fill in health questionnaires before boarding a boat.

The industry is praying staff will be able to weigh anchor as soon as possible.

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Luis has been collaborating as a content writer since 2017 with main focus on Politics and Economy, and is a self published fiction writer. A Sporting Lisbon fan, Old Trafford has played an important place in his heart over the years, as he believes a Man United line-up starring Giggs and Figo is still possible.