Carnival Plans August Return—4 Days After Congress Initiated Investigations Into the Company

Key insights:

• A big challenge for the industry will be determining how the onboard experience will change.
• Cruise lines are banking on loyal cruisers to keep them afloat.

Carnival, the world’s largest cruise line, announced that it would begin to “phase in” its service in North America beginning in August, only a week after the Center for Disease Control’s (CDC) no sail order lifts for the industry.

On Aug. 1, eight of Carnival’s 26 ship fleet will begin sailing out of its ports in Galveston, Texas, Miami and Port Canaveral, Fla. All other North American cruises will be canceled through Aug. 31, including its other franchises like Holland America, Cunard and Princess Cruises.

“We are committed to supporting all public health efforts to manage the Covid-19 situation,” the company said in a statement. “We are taking a measured approach, focusing our return to service on a select number of homeports where we have more significant operations that are easily accessible by car for the majority of our guests.”

The partial reopening will give the brand an opportunity to implement some of its social guidelines and health and safety screenings before rolling them out to the rest of its fleet.

“If the risk environment were to diminish over the next two months, cruises are a logistically intense operation as far as food, fuel, ports of call, crew, etc.,” said Paul Golding, analyst at investment firm Macquarie. “The lead time for that isn’t something you can just prop up overnight.”

An industry put on pause
Cruise lines, including Carnival, had already extended their first voluntary suspension of operations on March 13 to extend into late May and June. The first suspension was announced roughly a week after the U.S. State Department released a statement warning that Americans “should not travel by cruise ship” and that there was an increased risk of infection.

The next day, the CDC released a No Sail Order for the industry, stating that no cruise could sail until health officials declared that Covid-19 “no longer constitutes a public health emergency” or until July 24, whichever came first. The CDC’s order supersedes state law, meaning that Carnival won’t be able to sail even if states have softened stay at home orders.

About four hours after sharing its first announcement yesterday, Carnival provided an update, which said, “any resumption of cruise operations—where ever that may be—is fully dependent on our continued efforts in cooperation with federal, state, local and international government officials.”

According to the Miami Herald, 22% of active cruises reported Covid-19 infections, resulting in 74 deaths as of April 23.

While the return is largely dependent on how relevant the virus will be in August, the potential for another outbreak could severely harm the industry.

“They are out of their minds,” said Nicolas Graf, associate dean at New York University’s Tisch Center of Hospitality. “I can’t imagine them taking the risk of having another outbreak on a ship. I don’t see why they would do it.”

It seems Carnival might do it because it needs the money. The company’s shares are down at least 70% since the start of the year, and it has been forced to raise more than $6 billion in debt and equity to weather the storm.

When legislators came knocking
Monday’s announcement was especially surprising considering that last Friday, Carnival’s CEO Arnold Donald received a letter from the U.S. House of Representatives Committee on Transportation and Infrastructure requesting documents pertaining to what Carnival knew about Covid-19 cases on its ships at the outbreak of the virus.

Carnival’s woes with Covid-19 have been especially public after the Grand Princess and Diamond Princess were overwhelmed by the virus in February and early March, with more than 800 cases and 10 deaths between them.

“The American public needs to be assured that the global cruise line industry, and Carnival Corporation & PLC, in particular, are instituting necessary measures to ensure that the safety of the traveling public and crew members will be your number one priority when your ships set sail again,” said the letter from the legislators.

The letter also asked to see Carnival’s outbreak prevention plans and all records and letters referencing Covid-19 from employees at the brand’s headquarters.

A travel agent with over 30 years of experience, who requested to remain anonymous, told Adweek that she had “mixed feelings” about the announcement.

“On the one hand, it’s encouraging to hear that the industry is trying to begin operations again,” she said. “With anything, the devil is with the details. There are still many unknowns with what the onboard experience will be like.”

Safeguarding for the future
While the rest of the travel industry has cratered under the enormous pressure of Covid-19, the hospitality and airline industries responded by announcing new sanitary measures and cleaning initiatives. Carnival didn’t detail much in the announcement, although in its No Sail Order, the CDC said that cruise lines would need to implement new standards congruent with public health, like onboard temperature checks, medical screenings and the ability to isolate sick guests.

Unlike airlines, most cruise lines are incorporated in foreign countries. Carnival is a Panamanian company even though it’s headquartered in Miami. This means they’re largely exempt from paying income taxes and were excluded from the bailout that saw the airline industry receive an earmarked $50 billion in grants and loans.

According to research consulting company Magid, among travel brands, consumers had the least amount of trust in cruise lines, with only 32% of those surveyed saying they trusted cruise lines and 82% of participants saying they do not expect to take a cruise within the next six months. Another survey by Kantar showed that only 22% of participants would choose a cruise line when asked where would they would go if they could go on vacation.

All this to say, Carnival will be facing an uphill marketing challenge when it returns to the ocean.

“The marketing spend that has been absent, we would expect it was just being deferred and not necessarily eliminated,” said Golding. “They’ll have to spend on getting the repeat cruiser to reengage or to use their cruise credit.”

Bob Levinson, CEO of Cruise Compete, a booking site that matches travelers with travel agents that specialize in the cruise industry, is more bullish, admitting that while booking is down, the stigma attached to cruising is overblown, and with safety measures in place, travelers will return.

“If you can guarantee that no one has this when you get on the ship, you’re way safer there than your own supermarket,” said Levinson.

But if cruises can’t offer that guarantee, then it’s a matter of weighing the risk of a severe outbreak against the potential revenue that will come when ships set sail.

“There may be more risk in launching early and getting back out on the water than waiting until it’s safer,” said Pete Trombetta, analyst covering the cruise industry at ratings and analysis company Moody’s.”If there is another incident with a sick passenger or a quarantined ship or a ship that can’t pull into port and, in peoples’ view, it’s because Carnival rushed to start cruising, that could really have a negative impact on the industry as a whole.”

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