First there was the Diamond Princess, which was stranded off the coast of Japan when the coronavirus infected hundreds of passengers. Then the Westerdam, which circles in the sea for days and cannot dock anywhere. Then the Grand Princess, the Costa Luminosa and the Zaandam.
Cruise ships have been a focus of the coronavirus pandemic from the start, which has been widely blamed for a number of serious outbreaks that have spread the disease around the world.
Now the companies that own these ships are facing a potential financial disaster. With most international travel stopped, they have virtually no income. They have become symbols of deadly contagion. And despite President Trump̵
Carnival Corporation, which serves nearly 11.5 million travelers annually, or around 50 percent of the global cruise market, is at the center of the crisis. Over the past few months, the company has made widespread outbreaks of outbreaks on several of its ships, including the Diamond Princess and Zaandam, which have attempted to unload sick passengers in Florida.
Since the beginning of the year, the company’s share price has fallen by more than 80 percent, although it rose sharply the following Monday – to $ 10.21 per share The state investment fund of Saudi Arabia said it had acquired a stake in the company. And last week, Carnival, which had already drawn on bank credit lines, started raising $ 6 billion by selling stocks, bonds, and other securities. Some of these bonds were sold to investors at a suggested interest rate of 12.5 percent, a strikingly high value.
In an interview, Carnival’s managing director Arnold Donald said the sale would generate enough money for the company to survive without revenue by 2021. He added that Carnival hoped to benefit from stimulus programs in other countries where it operates, such as Germany and the UK, and Australia.
“If you run out of money, you lose the company and we can’t live with that,” Donald said. “So we want to make sure we’re prepared for an extreme case.”
Last week, a one-month voluntary cruise interruption became much longer, and some companies canceled trips planned for October and November. Mr. Donald admitted that it was a precarious moment. The high interest rate on the debt business “will be an absolute challenge for us,” he said.
“It’s no fun selling stocks at the stock price,” he added. “It is very disappointing.”
Before the stock offer, Goldman Sachs, JPMorgan Chase, and Bank of America had worked on a Carnival debt agreement that would offer some investors a potential return on old age, according to two people familiar with the discussions. Bankers have given the deal to hedge funds and private equity investors, some of which have been passed on due to concerns about the company’s long-term profitability.
The two major cruise companies alongside Carnival – Royal Caribbean and Norwegian Cruises – are also looking for cash. Norwegian opened an existing $ 1.55 billion line of credit. In March, Royal Caribbean secured a $ 2.2 billion loan, with its ships serving as security.
Of course, the ultimate fate of the carnival and the rest of the cruise industry depends on how long the pandemic lasts. And even if companies survive, it can take years to fully recover.
“I wouldn’t be surprised if the industry were redrawn in some ways,” said Ross Klein, a sociologist at Memorial University of Newfoundland who studies cruises. “Maybe some companies will disappear, others will be taken over and see ships being retired.”
In February, cruise liners became an early symbol of how quickly the Coronavirus could spread in a confined space when more than 700 Diamond Princess passengers were infected when the vessel idled off Japan. As social distancing became more common in February and early March, cruises were among the first activities that Americans began to avoid.
Still, industry experts hope that hardcore cruise fans will return fairly quickly after the end of the pandemic, even though optimists acknowledge that for the first time, it takes high discounts and aggressive marketing to get people on cruises for the first time. Another challenge: Around a third of cruise passengers are 60 years of age or older – a group at higher risk of serious infections who may be reluctant to be exposed.
For Carnival, the first outbreak of the corona virus in Asia led to weeks of criticism as the company fumbled its reaction to the situation with the Diamond Princess. Another of his ships, the Grand Princess, had a number of infections last month when she was sailing to California.
Mr. Donald defended the carnival’s response to the pandemic, including his decision to continue sailing in early March when the scale of the global crisis became clear. (The carnival eventually ceased operations worldwide, but still has four ships at sea.)
“We don’t try to play God. We don’t try to play government,” said Donald. “We stick to it. We listen to what people say we have to do.”
Last month, he and other industry leaders held talks with the White House Coronavirus Task Force, led by Vice President Mike Pence. In these talks, Donald said, he was pushing for a federal loan guarantee that would allow cruise companies to get funding at lower interest rates. And Micky Arison, CEO of Carnival, He had several calls to Mr. Trump, who last month called the cruise liners the “main candidate” for federal support.
However, under the terms of the Trump stimulus package, the major cruise lines were not eligible because they are registered outside the United States, which largely exempts them from paying federal income taxes.
A piece of this package “would have been nice,” said Felicia Hendrix, cruise analyst at Barclays.
Nevertheless, the cruise companies are in a good position to survive the crisis, also because the operating costs have decreased. “You don’t feed the people of an entire ship,” said Ms. Hendrix. “You don’t have a full crew. You don’t use up the full fuel.”
And unlike neighborhood restaurants and other small businesses that are on the brink of collapse, cruise companies have started the crisis with healthy balance sheets. At the beginning of the year there was a carnival Royal Caribbean had $ 518 million in cash, Royal Caribbean $ 243.7 million and Norwegian $ 252.9 million.
Due to the crisis, Carnival and Royal Caribbean have fired or given leave on contract while Norwegian cut salaries and put some employees on a four-day work week. The effects of switching off the cruise also affected the entire economy, injuring travel agents, taxi drivers and performers.
Last month, one of Carnival’s nine cruise brands, Carnival Cruises, told dozens of entertainers appearing on their ships that they would not be paid for canceled bookings. Then, a few days later, the company said it would pay them. Then it announced a new complication – the payment would be made sometime in the next 60 days instead of the usual two weeks.
“This billion dollar company took this burden and passed it on to us,” said Steve Burr, a 52-year-old comedian in Tampa, Florida. “I’m driving Uber and I’m trying to collect a cent wherever I can.” and desperately trying to report unemployment. “
In the past few weeks, Mr. Donald has worked from his Miami Beach residence. He has the space for himself – his wife is still at sea on one of the ships.
Sometimes he walks along the beach and is amazed at the emptiness. “The pigeons actually looked confused because there were pigeons and no people,” said Mr. Donald.
But most of the time he lives in the row of idle cruise ships that anchor on land and can’t go anywhere. “You are right out there while I look out,” he said. “It is very surreal.”
Matthew Goldstein contributed to the reporting.