The Malta Independent 28 September 2020, Monday

Cruises in 2020: ghost ships or recovering business?

Tuesday, 11 August 2020, 10:31 Last update: about 3 months ago

Julia Fedotova

Exactly one year ago, in summer 2019, the global cruise industry announced the fastest growth in the entire tourism sector. Despite the high cost of the liners - on average, to build a ship costs half a billion dollars - at that time 106 new ships were ordered. Today, there are no new orders and the future of those already made is ambiguous. Moreover, due to forced downtime, the next stop for some of the liners will be a dump for scrap metal.

The operation of a ship is so expensive that after a few months without usage, a question arises about the expediency of using ships. Furthermore, even before the crisis, the market participants estimated that one-third of the world cruise fleet will become scrapped in 10-15 years. At the beginning of the year, it was difficult to order a new ship: there are only a few construction shipyards in the world namely state-owned Fincantieri with yards in Italy and France and Meyer Werft in Germany and Finland are especially popular in Europe. It took several years to get your turn for the construction. Almost 40% of orders for new vessels today are from cruise giant Carnival, while the second place is held by RCCL (Royal Caribbean). Now, some investors would be happy to agree on the revision of contracts, as payments are made in installments. In the coming years, many investors do not expect to see profit in the cruise industry, while others simply have nothing to pay. Lawyers are sceptical about such initiatives: "The contracts are watertight."

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For those clients who had already bought tour packages by the time of the pandemic, companies offered vouchers. In other words, they promised to execute their obligations in the future. Theoretically, it is possible to get a refund, but it would kill the sector that is suffering losses, so the managers were given instructions - to persuade by any means, try not to lose the client base and save the remaining cash. Anyway, 45% of customers opted for cash at first, and now almost 80% are refusing to take the vouchers. However, according to analytics from Morgan Stanley, the new bookings are mainly the rebookings of those cancelled cruises. This once again emphasises the realistic description of what is happening in the segment by agents when they use the word "depressing".

Experts estimate that it will take about three years until European tourism will fully recover. Three years if no new misfortune occurs. So far, few people take the risk of actively travelling in general, the courage in this context was shown only by the Germans: their groups were formed by travel agencies even before the borders were opened. As for cruises, the first routes are scheduled for August-September, although even if these ships will go out to sea, they won't be allowed to enter any ports. To get the cruises back to normal operation, the ports must be opened. For example, in North America, this will not happen until November.

However, let's talk about the second significant cruise market - Europe. Let's consider details on the example of tourists from Germany. The average price of a tour has been steadily growing in recent years and at the beginning of this year was about €2,000. The average passenger of a liner is 50 years old and will spend nine days on the voyage. Now, even the industry participants themselves have no clue, what prices will apply by the end of the year - today, companies are trying to interest customers with discounts.

In addition to all the misfortunes, new requirements to reduce sulfur in marine fuel from 3.5 to 0.5% came into effect on 1 January, which may become another trigger for weakening the financial performance of companies. Marine pollution is a serious problem for the tourism industry. The ambition is to reduce emissions from ships by 40% by 2030 and by 70% by 2050.

To return to business, cruise companies must convince both buyers and regulators of the maximum safety of travels. As it turned out, there were no general guidelines for liners in case of a pandemic. Nowadays, each operator develops its own safety protocols. Generally, they plan to cancel buffets, give more space per person, allow people on board only if they have a valid health certificate, skip ports with unfavorable conditions and make more landings on poorly populated islands.

While some countries like Spain, which has extended the ban on cruises for an indefinite period, are not ready to take risks in the face of uncertainty, others try to accept the new reality and offer competitive conditions. For example, Cyprus is ready to provide sick people on the island with a separate hospital for 100 beds and a hotel for quarantine and to cover the cost of medical treatment for guests.

The huge white liners leaving the port of Valletta have long been an organic part of the landscape. However, in the new world of post-pandemics, it is the prerogative of citizens to decide when and under what conditions these floating cities will return to shining on the horizon.


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