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Cruise industry, caught in the eye of the coronavirus storm, faces battle to regain customer trust

Cruise industry, caught in the eye of the coronavirus storm, faces battle to regain customer trust
Business
About 3,700 people were marooned off the coast of Japan in quarantine for two weeks on the Diamond Princess, with more than 540 passengers showing signs of infection. Another ship, the Westerdam, is quarantined in Cambodia after being repeatedly rerouted across the South China Sea and denied entry to five other countries.

Though instances of infection have been limited to two ships so far, both owned by Carnival Corporation, the US$45-billion cruise industry faces a battle to regain customer trust.

More than 50 cruises have been cancelled, seven ports closed and thousands of holidaymakers’ plans disrupted as authorities scramble to prevent the spread of the coronavirus.

“If it dies down now then it’s probably manageable,” said Alex Brignall, an analyst at Redburn covering the cruise industry. “If it gets outside Asia on a cruise ship, it will be very different.”

Shares in the three major cruise operators — Carnival, Royal Caribbean and Norwegian Cruise Line — are down between 10 and 16 per cent since the beginning of the year as investors register their concern.

If it dies down now then it’s probably manageable. If it gets outside Asia on a cruise ship, it will be very different

Alex Brignall, analyst

Companies themselves have warned that bookings for all regions have been “soft” since the outbreak.

Royal Caribbean last week said that cancellations, alongside a moratorium on remaining sailings in Asia until the end of April, would lead to a roughly 12 per cent fall in earnings this year. Carnival guided to a hit of roughly 14 per cent a share should Asian itineraries be cancelled until May.

Asia is a small but fast growing market for cruises. The number of Asian passengers rose to about 4.2 million in 2018, up from 1.2 million five years earlier, according to industry group Cruise Lines International Association. More than half of those were Chinese.

According to the UN World Travel Organisation, Chinese outbound travellers spent US$277 billion in 2018 — more than any other nationality.

Masked passengers look on from on board the coronavirus-hit Diamond Princess cruise ship docked at Yokohama Port, south of Tokyo, Japan, February 20, 2020. Kim Kyung-Hoon/Reuters

Costa, a Carnival brand and the first to offer cruises around China, launched a ship specifically for the Chinese market in May 2019, complete with seven karaoke rooms and bigger casinos. Royal Caribbean, the second largest cruise company, has two liners scheduled to travel to China this year. No changes have been made to those plans.

“We have already taken aggressive steps to minimize risk through boarding restrictions and itinerary changes,” said Richard Fain, chief executive of Royal Caribbean in a statement last week. The CLIA said that cruise companies had been “agile and responsive” to the situation.

The industry has faced crises before. The sinking of the Costa Concordia in 2012 off the coast of Italy led to 32 deaths. A year later, 4,200 passengers and crew were stranded on the Carnival Triumph for nearly a week without power after an engine room fire, while norovirus outbreaks frequently hit the headlines.

But “crashing a cruise ship is not contagious, nor is running out of electricity,” said Brignall, adding that with a high number of older passengers and enclosed conditions on board, “if something slips through the net, then the impact can be huge.”

A security guard wearing a facemask, walks next to the Diamond Princess cruise ship, in quarantine due to fears of new COVID-19 coronavirus, at Daikoku pier cruise terminal in Yokohama on February 21, 2020. Philip Fong/AFP via Getty Images

David Handley, a maritime lawyer at Watson Farley & Williams in London, said the most pressing issue was routing ships out of Asia. “How do cruise lines deal with some very expensive assets that were scheduled to be in Asia and which now there’s no point having in Asia because people just won’t travel,” he said.

As operators wait for Asian sailings to resume, the cruise industry has been quick to highlight the stringency of its regular sanitation procedures.

“We do checks during the voyage as well as checks at the beginning. Crew members are trained to look out for unwell passengers,” said one industry executive, who asked not to be named. “It is one of the things on which we place most value.”

We do checks during the voyage as well as checks at the beginning. Crew members are trained to look out for unwell passengers

Cruise industry executive

All cruise ships have a hospital room and passengers are regularly encouraged to use hand sanitizer. Since the coronavirus outbreak, larger cruise companies have started operating mandatory temperature scans before boarding and passengers from China have been banned from sailing.

They have also paid out millions in compensation. Based on an average cabin price for next year, the cancellation of a full capacity 12-day cruise on Norwegian from Hong Kong would cost the company in the region of 2.3 million pounds in refunds.

But while customers are compensated for cancelled trips, most major cruise lines do not have commercial insurance to cover situations such as the coronavirus outbreak because premiums are punishingly high. Costs will have to be absorbed or paid out from a mutual liability insurance available through a group of shipowners’ clubs called the International Group of P&I Clubs.

Passengers look out from the balconies of the Diamond Princess cruise ship on Feb. 19, 2020. Charly Triballeau/AFP via Getty Images

Claims in excess of the US$10 million retained by individual member clubs are pooled between the whole group.

Eric Chung, 68, who was aboard the Diamond Princess with his family, said that staff had been guarding passageways and passengers had only been allowed on deck if they were wearing masks and rubber gloves.

He brushed off the quarantine measures saying he would happily take another cruise, but next time would book a cabin with windows.

As the executive pointed out: “The cost of a screw up is huge. People have to be comfortable on board. Bad PR from cutting any corners could be a business killer.”

Additional reporting by Nicolle Liu in Hong Kong

© The Financial Times Limited 2020. All Rights Reserved. Not to be redistributed, copied or modified in any way.

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