On April 9th, the CDC announced that they were extending the temporary “No-Sail Order” on cruise line services. The order will continue until for at least 100 more days or until the CDC rescinds or modifies the order. The point of the order is to contain the spread of COVID-19 until it no longer constitutes a threat to the public at large.
COVID-19 has caused a massive downturn in the cruise line industry. While virtually all cruise lines have suffered, Carnival Corporation brands including Princess Cruises and Holland America Line have been at the epicenter of this struggle.
COVID-19 outbreaks have been reported on ships from almost half of its brands and several hundred passengers have been infected. Carnival Corp stock prices have also fallen nearly 80% since the onset of the global crisis. Carnival has fallen on hard times in the past and always bounced back, but experts say that this time may be different.
During these trying times, people understandably want to know what cruise lines and cruise companies are doing to help contain the crisis. Given that cruise ships are a powerful vector for disease, many believe the companies have a social obligation to do what they can to mitigate the danger.
Carnival Cruise Line has stated that they “share the global priorities of health and safety for all,” and are working hand in hand with public health experts to figure out protocols for screening, containment, and crisis management onboard their ships.
In the interest of public health and safety, we are going to take a look at steps Carnival is taking to survive the cruise line suspension and what steps they are taking to manage the crisis going forward into the future. We’re also including cruise brands such as Carnival Cruise Line, Princess Cruises and Holland America Line.
Voluntary Suspension of Cruises
Carnival Cruise Line which is one of the main cruise lines has voluntarily suspended all cruise activity in North America with plans to resume operations on June 27, 2020. The cruise line was among the first major lines to voluntarily halt its operation as a pre-emptive measure on March 12, 2020, for the stated goal of preserving the health and well-being of staff and guests.
They are taking this time to assess and manage problems on board while taking care of any infected crew and passengers. Carnival has stated that it is dedicated to maintaining the health and safety of all passengers and crew on board their ships.
Other major cruise lines under the Carnival Corporation umbrella have also announced extended suspensions of their cruise operations. Princess Cruises has cancelled sailings until July 1 and Holland America Line is the same. You can see the complete list here.
Carnival has been communicating with customers and travel partners directly to minimize any disruption due to the crisis. In the meantime, their support team is busy handling calls from home to manage company operations in a timely manner. They claim to understand and appreciate the patience of all affected parties during this time.
Despite these cancellations, Princess Cruises will continue it’s multi-year “Come Back New Promise”, which is a $450 million innovation campaign dedicated to enhancements and renovations to improve the passenger experience. They also still plan to release their two new royal-class ships by the end of 2020 and 2021
Despite the voluntary suspension, Carnival Corp and its brands have come under criticism for not acting soon enough. According to sources reported in Bloomberg, Carnival still had ships out as recently as earlier this month, almost a full month after the CDC issues its general advisory warning to halt all cruise activity in March.
Sources also report that the company continued operations as normal for almost a day before announcing a quarantine notice over the public speaker system on the Grand Princess Ship. As of now, over 32,000 passengers and crew members that were on infected ships are back onshore now.
Worth Reading: How Will Coronavirus Affect My Future Cruise?
In fact, Carnival may soon be embroiled in a high-profile lawsuit. A class-action lawsuit out of Australia threatens to sue the company over the claim that passengers were misled about the safety onboard Carnival ships. Hundreds of passengers in Australia became infected with COVID-19 after a Carnival cruise and at least 10 people have died.
Given the voluntary suspension on cruise line activity, Carnival Cruise Line has canceled many future scheduled cruises with the goal of minimizing the spread of infection and incubation. The Carnival-owned line has canceled all scheduled cruises until June 27, 2020, and has canceled cruises in San Francisco through all of 2020. Carnival Sunrise sailings have been canceled until October 19, 2020, Carnival Legend Cruises have been canceled until October 30, 2020, and Carnival Radiance cruises until November 1, 2020.
Carnival is also working with customers to reimburse them for the value of their canceled trips. Any guest that canceled their trip after March 6, 2020, will be entitled to one of the following reimbursement options:
- 100% refund
- For 6+ Day Cruises: A 100% future credit on future cruise trips, and a $600 credit on per stateroom on their next booked cruise.
- For 5> Day Cruises: A 100% future cruise credit on any future trip and a $300 credit per stateroom on any future trip booked by 12/31/2020.
They want to make the selection as easy as possible for customers so picking a cancellation option can be done online at their cancellation portal. Carnival also plans to completely refund any amount spent on taxes, fees, port expenses, vacation insurance, pre-purchased packages, and pre-paid gratuities.
Princess Cruises is also on a new policy for canceled trips. Customers who have had their trips canceled may request either a 100% refund on all expenses including fees or opt for a 100% bonus credit towards future scheduled cruises.
Following Measures from the CDC
The CDC has recently updated its guidelines involving outbreaks of infectious respiratory illnesses on cruise ships. The CDC is currently working with partners in both the Coast Guard and Customs and Border Protection departments to assess risk and quarantine procedures onboard infected cruise ships. Carnival claims it is working closely with local authorities to ensure quarantine guidelines and procedures are followed.
The CDC recommends that cruise passengers with either no or mild symptoms immediately disembark at the nearest port of safe entry. While the US government has played a role in evacuating several passengers in recent weeks, repatriation flights cannot be relied upon for all US citizens who are under cruise ship quarantine in a local jurisdiction. Further, the US government has stated that cruise lines must be responsible for seeing passengers all the way to their homes via chartered transportation.
In light of this requirement, all Carnival brands are working closely with local authorities to ensure their sanitation protocols are aggressive enough to tackle the crisis. Working with the Cruise Lines International Association (CLIA) and the Vessel Sanitation Program, Carnival Cruise Line has even established comprehensive sanitation procedures that are aimed at minimizing the risk of infection and transmission. These procedures have been shown to be effective at reducing incidence rates onboard ships.
To that effect, outbreaks on Carnival-owned ships are currently being used by the CDC to benchmark COVID-19 incubation rates. Between February 7-23, 2020, the current largest coronavirus outbreak outside of mainland China took place on Princess Cruises’ Diamond Princess cruise ship. The CDC notes that outbreak responses directed at limiting transmission among passengers and crew required the precise coordination of actors across multiple sectors.
Carnival states it is abiding by all CDC guidelines for maritime COVID-19 outbreaks. The CDC has issued specific guidelines on how ships should go about reporting on infections/deaths from passengers and crew. These guidelines are focused on three key concepts: to reduce risk, isolate symptomatic people as quickly as possible, and protect healthcare personnel. Patients who are suspected of having a COVID-19 infection are to be quarantined in a single occupancy room until symptoms improve.
The CDC also recommends that cruise ship companies like Carnival educate crew on:
- The global risk of COVID-19 infection
- Key symptoms indicating an infection
- Federal guidelines for reporting known or suspected COVID-19 infections
- Importance of proper hygiene/sanitation practices as well as the necessity of self-quarantine if exposed
Companies are also advised to review sick leave policies and report them to employees. Crew members who present with symptoms of fever or respiratory issues (coughing or difficulty breathing) must be immediately evaluated.
There are also guidelines for managing crew and passengers after disembarking from a ship. Cruise ship companies must discuss the disembarkation of passengers suspected of being infected with the relevant CDC quarantine station that has jurisdiction in the region.
Along with specific protocols for managing and reporting infections, extra recommendations from the CDC include:
- That staff be provided suitable personal protective equipment (PPE) and instructed in the proper use of said equipment
- Ships are stocked with a sufficient amount of dispensers and alcohol-based hand-sanitizing solutions
- That crew be trained in the proper use of disinfectant materials and equipment
Stricter Cleaning Protocols
Along with their standard cleaning procedures, Carnival Çruise Line has introduced new measures meant to combat infections on their ships. Advanced cleaning measure protocols include:
- Frequent sanitation of all tables, chairs, menus, and other common items in dining areas/restaurants
- Comprehensive and more frequent sanitation of all deck equipment and recreational equipment (e.g. furniture, golf clubs, sun-loungers, etc.)
- More frequent sanitation of public spaces and fixtures such as handrails, counters, display casings, casino machines, screening equipment, elevators, fitness machines, and more.
- Strict monitoring of food stations and self-service stations such as buffest and self-serve condiment bars.
- More thorough stateroom cleaning. Rooms are cleaned twice per day with special attention to bathrooms, counters, and fixtures commonly touched by hands.
- Providing handwashing stations and sanitization services at all entrances to public areas. Passengers are given information on proper handwashing routines on a regular basis.
- Additional sinks/handwashing stations have been placed in areas that see high volumes of traffic.
- Washing and drying services have been modified to better sanitize staff and passenger clothing along with common-area fabrics/linens.
- Every night, all high-traffic areas are subjected to an electro-static deep clean/disinfecting process using specialized machinery.
However, experts point out that simply improving cleaning protocols may not be enough. According to Qinyang Chen, a professor of mechanical engineering at Purdue University, the real worry on cruise ships is not so much sanitization of surfaces but the recirculation of air into cabins. “Those small particles that might contain the coronavirus are returned to the cabins,” Chen told Business Insider. The worry is that recent COVID-19 outbreaks could be spread more by ventilation systems rather than person-to-person transmission.
Offering Medical Assistance
Carnival Cruise Line claims it recognizes its responsibility to manage crisis onboard in a safe and effective manner. All of Carnival Corp’s ships are staffed by a professional and knowledgeable Medical Center Staff. Cruise medical staff are trained at managing routine conditions and stabilizing more serious conditions. The CDC mandates that cruise line companies are responsible for treating and managing infected patients, including those that require hospitalization.
Medical staff on board Carnival ships are trained in accordance with guidelines set down by the American College of Emergency Physicians (ACEP) and the CLIA. All staff must demonstrate competence and hold certification in several emergency procedures such as CPR and cardiac care. Further, all staff have at least 1-3 years of experience caring for patients in a clinical setting and possess minor surgical skills.
Carnival medical centers also have important equipment such as defibrillators and pacemakers, along with diagnostic pieces of machinery such as EKG machines, x-ray machines, and pulse oximetry machines.
Carnival also offers OTC medications for any symptoms related to respiratory illnesses though they lack medication for more serious conditions and prescriptions. All passengers are offered hand sanitization and sanitation guidelines are broadcast to all passengers on the ship.
Medical staff is available on a 24/7 basis and medical attention can be provided directly to passengers in their staterooms. Medical storage for temperature-sensitive medications such as insulin are available to customers by request.
Using Ships as Offshore Hospitals
On March 19, 2020, Carnival Cruise Line’s parent company Carnival Crop announced that it was currently in talks with the US government to allow ships from fleets of their different US brands to be used as offshore hospitals to handle excess patients that cannot be taken to normal hospitals. The plan will be to transfer non-COVID-19 patients to offshore facilities, freeing up hospital resources and allowing them to direct their efforts to combat the virus.
By using cruise ships as offshore hospitals, Carnival Corp hopes to help alleviate the stress that has already overwhelmed the country’s medical infrastructure and allow them to focus on COVID-19 containment. Each cruise ship can serve up to 1,000 patients with non-COVID-19 related complications and is equipped with machinery to monitor and report on patient vitals. Carnival ships also have rooms that can be used as isolation chambers if need be.
According to company announcements, each cruise ship has the capacity to provide 7 ICUs equipped with medical equipment, and medical functions can be localized to specific areas on the ship’s decks, similar to the layout of a land-based hospital. The benefit of this setup is that high-risk patients can be localized to specific segments based on their intensity of required care.
The company plans to berth these temporary offshore hospitals near communities in need and have all service and maritime operations helmed by the ship’s crew. Once containment is done, the company will help facilitate patient transfer back to normal hospitals. It is still an open question whether Carnival Corp will proceed with these plans under the direction of the CDC and White House.
Debt Funding and Stock-Related Matters
Given that the cruise industry is excluded from the Federal government’s $2.2 trillion plan and Carnival won’t receive a bailout, the company at a corporate level has taken several steps to increase share liquidity in the short term and stabilize trends over the long term.
On March 13, 2020, Carnival Corp Announced that it was borrowing $3 billion from lenders to facilitate and preserve financial flexibility in light of the recent insolvency issues and the uncertainty affecting the global economy. The proceeds from this transaction are being used for working capital and other general purposes.
Along with the recent borrowing, Carnival says it will address any negative issues affecting shareholder value by taking actions to improve liquidity, reduce expenditures, and locate additional finances for capital projects.
Carnival Corp is also looking for other ways to reimburse shareholders for holding on to their stock during the downturn. On March 3, 2020, Carnival Corp announced that it was implementing a quarterly cash dividend of $0.50 USD for shareholders on record as of February 21, 2020.
Carnival Corp also announced on April 8, 2020, that they had closed over $4 billion in principal amounts 11.500% First-Priority Senior Secured Notes due 2023. They also announced that they closed on an additional $62.5 million aggregate principal amount of Convertible Notes. Net proceeds from the Secured and Convertible Notes for general corporate financial purposes. The funds generated from this closing will be held in Escrow until certain collateral perfection thresholds are met.
Lastly, Carnival has added almost 62.5 million new shares to offset the loss in capital funds and incentivize trading. Carnival has taken a public offering of 62.5 million shares for $8 each and has provisions allowing the purchase of 9.375 million more shares if need be.
The result of all of these transactions is that Carnival will have an expected $7.6 billion on its balance sheets after adding in the $1,35 billion they made in the first quarter. This amount is expected to carry the company through rough financial times.
Aside from taking steps to manage finances during the downturn, Carnival Corp has remained open and honest with shareholders regarding the materially adverse effect that the COVID-19 outbreak has had and will have on their US brands, including Carnival Cruise Line, Princess Cruises, Holland America and many more. The company openly recognizes that the outbreak will affect cruise demand which will be reflected in lower share prices.
They also recognize the inherent risk in data security and protection measures given the disruption to their principal offices. According to company statements, they estimate that cruise suspensions may affect 2020 performance by $0.55-$0.65 per share.
The global pandemic has hit virtually every sector in the economy, with some more affected than others. Cruise companies are doing everything they can to handle finances during the economic crisis and implement safer protocols to manage and reduce infections on board their ships.
Carnival has taken several steps to survive the suspension, including but not limited to the voluntary suspension of their lines, implementing updated sanitation procedures, working closely with government and official agencies to develop quarantine protocols, and taking steps to maintain shareholder value and confidence.
But the question remains, will it be enough? Experts point out that whether or not Carnival and the cruise ship industry will survive the outbreak depends on 2 important factors: 1) How long the virus takes to run its course, and 2) what the state of the landscape will be in the future. As of now, there is no real way to predict with certainty what will happen.
Carnival has not been the only cruise line affected by the crisis. Both Norwegian Cruise Line and Royal Caribbean have seen 80% stock drops in the past month. But not everyone is convinced that the cruise ship industry and Carnival are facing the end. According to Wedbush Securities’ James Hardiman, cruise ship companies might stand to double or triple their value over the next year and a half if they can weather the crisis.
Nevertheless, there is a pressing need for those in the cruise industry to address the ongoing crisis. The need is even more exacerbated given that a sizable portion of cruise-goers are older; a demographic that is at a higher mortality risk from COVID-19. Carnival Cruise has taken many steps to survive the current suspension but we will have to see if their efforts will be successful.