Coronavirus challenges $45 billion cruise industry

Coronavirus concerns have pushed the $45 billion cruise line industry to cancel trips and reroute ships as it struggles to contain the impact from fearful travelers. But experts say the industry will bounce back after the outbreak is contained.

“Business is soft, people are scared to travel,” Frank Del Rio, CEO of Norwegian Cruise Line Holdings Ltd.,told investors Thursday. He predicted the trend would continue, “until we see the leveling off of new cases.”

Carnival Cruise Lines, Norwegian Cruises, and Royal Caribbean Cruises all together recently announced they’d canceled nearly 40 cruises and rerouted over 40. Shares are down across the three major cruise lines from 10 to 16 percent since January.

Carnival told investors if travel restrictions continue through May, it could lead to a 14 percent reduction in share price. Royal Caribbean said additional cancellations could lead to a roughly 12 percent decrease in earnings this year.

Earlier this over 600 passengers Carnival’s Diamond Princess were forced to remain on their ship in "chaotic conditions" after testing positive for coronavirus. Some described their 10-day quarantine like being held “hostage.” Two passengers later died after leaving the ship.

The cruise lines have announced additional cleaning and safety measures to address the coronavirus issue. Several cruise lines are denying boarding to passengers who have visited infected regions, and extra screenings for anyone who appears sick or may have come in contact with travelers to affected regions.

“The industry is really erring on side of caution to reduce the risk of introducing virus on board this ship,” Brian Salerno, spokesperson for Cruise Lines International Association trade association, said.

China is a growing market for cruise lines and currently makes up roughly 10 percent of the market, according to Salerno with the Cruise Lines International Association. North America makes up about 50 percent of the market and Europe accounts for 25 percent, he said.

But Chinese travelers who fly to Europe then board a cruise back to the mainland make up a larger slice of customers, about 14 percent. This slice of customers is directly impacted by cruise lines’ travel restrictions, said Salerno.

The cruise industry has previously faced and recovered from health outbreaks before, including norovirus and chickenpox.

“If you look at prior outbreaks what you see is kind of short-lived duration impact on booking trends in the cruise space followed by a return to normalcy over the subsequent months,” said Sharon Zackfia, an equity analyst with William Blair.

“The cruise industry is really resilient and I don’t expect we’ll be talking about this in 2022,” she said.