South Florida's cruise business is, well, cruising again
The cruise business was idled for 15 months. Ships were empty except for skeleton crews. Passengers stayed home. Jobs were cut and South Florida’s cruise ports — some of the busiest in the world — were quiet.
No stevedores. No crew members. No passengers. The cruise business was closed because of COVID-19.
But since sailing restarted last summer, business has been booming. Passenger demand to sail is stronger than it was before the COVID-19 virus shut down the industry, costing tens of thousands of jobs and billions of dollars in revenues.
The three major cruise line operators — all based in South Florida — talked about their business prospects in upbeat terms during their most recent quarterly financial conference calls with industry analysts.
"We not only delivered another outstanding quarter that significantly exceeded expectations, but are also increasing our full year earnings guidance by another 33%," said Royal Caribbean CEO Jason Liberty on July 27.
The cruise operator expects this year’s profits to be even stronger than it predicted just a few months ago. And it isn’t alone in riding the wave of passenger demand.
In late June, Carnival Corp. CEO Josh Weinstein told investors, "There was much to celebrate in the second quarter."
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Doral-based Carnival is the world's largest cruise operator.
"We just hit all-time highs for bookings and customer deposits. And remarkably, we are still experiencing a phenomenal wave season, which started early, gained strength, and is still going strong midway through the year," he said.
The message was similar from Norwegian Cruise Line Holdings CEO Harry Sommer during an Aug. 1 conference call with analysts. "We achieved record revenue of $2.2 billion in the second quarter, an increase of 33% over the same period in 2019." Though the company's outlook was less than anticipated.
Profitability - but almost $70bn owed to lenders
It has been a sharp rebound in business for the cruise companies after missing more than a year's worth of sailing. Throughout the Centers for Disease Control and Prevention ordered shutdown, the operators continued to sell cabins and saw strong demand even as ships remained empty.
"I think these companies have really been able to figure out how to run it in a much more efficient way," said Morningstar stock analyst Jaime Katz. "This time off has really given the management teams a way to think about how do (they) optimize revenue management. I think that has permitted these companies to come back with a really diplomatic pricing tactic."
She described 'diplomatic pricing' as a tactic of avoiding deep discounts on fares to fill-up ships and instead packaging together different amenities. The practice allows cruise companies to add or subtract items included in a booking based on demand. The more people buying, the fewer amenities need to be included in the base price to attract a buyer.
"They had to borrow to stay alive. So it's going to take time to start tackling that debt. But they're definitely on the right path."Moody's Senior Analyst Pete Trombetta
This trio of South Florida-based cruise giants have lost tens of billions of dollars combined since the beginning of the pandemic. The cruise industry did not ask or receive federal bailout dollars under the CARES Act because they operate as foreign companies and do not pay U.S. corporate taxes.
All three were profitable in the second quarter, if you don’t count the hundreds of millions of dollars they spent paying interest on loans. But they have to pay that interest and it takes a big bit out of profits.
Those loans kept the companies afloat when they weren’t allowed to sail. Together, the three big cruise companies based in South Florida owe almost $70 billion to lenders.
Moody's Senior Analyst Pete Trombetta calls the cruise industry's IOUs "massive — much higher than it was pre-pandemic."
The credit rating agency recently upgraded its outlook for Carnival and Norwegian citing strong future bookings and strong pricing trends.
Strong demand has allowed the companies to keep prices up. And they need the cash. Each firm is spending more paying interest on its loans than what it spends on fuel for their ships.
"They had to borrow to stay alive. So it's going to take time to start tackling that debt. But they're definitely on the right path," Trombetta said.
Big rebounds for Port Everglades and PortMiami
The big rebound of cruising is big for South Florida with two of the top three busiest cruise ports in the world. Already this year, the number of passengers moving through Port Everglades is up 77% compared to a year ago.
"All of us as cruise ports right now are preparing for that next level of growth in the industry," said Port Everglades Director Jonathan Daniels.
The Fort Lauderdale port has been renovating a terminal that will be dedicated to Disney in time for the winter cruise season later this year. This comes after renovating a separate terminal earlier this year for Royal Caribbean’s Celebrity brand.
"We're actually hiring. We're actually hiring additional people. We're creating our own cruise operations department, which the port has never had," said Daniels.
It’s been a big wave of business at PortMiami, too. More passengers mean more revenue for Miami-Dade and Broward counties – the owner of the ports. Cruise passenger revenue in Miami fell 95% when ships were ordered to stop sailing. It already tops $100 million this fiscal year — on par with 2019 — the year before the pandemic put a stop to cruises.
Carnival and Royal Caribbean shares more than doubled in price during the first half of the year.
Some of the early COVID-19 cases and headlines came from cruise ships. A few boats were quarantined and not allowed to dock for days over fears of passengers spreading the virus onshore. Thousands of crew members remained on board other ships for sometimes months after the industry was ordered to suspend operations.
It added up to plenty of negative publicity at the time, but it hasn't dampened passenger demand that is necessary for the industry to continue recovering.
In order for that to continue, cruise operators need to continue attracting first-time passengers and converting them into repeat customers, with a focus on younger sailors.
"The younger generation loves to travel. They love to have experiential components to their lives," said FIU Chaplin School of Hospitality and Tourism Management Asst. Dean Joe Cilli. "If the cruise industry can make it affordable enough to them, then that's where they're looking because the additional spend once they're on the ship is significant."
And the cruise operators say they are seeing passengers spend more money while on board.
One of out three cruise passengers are at least 60 years old. But the average age for passengers sailing in the Caribbean — where ships from South Florida travel — is in the mid-40s.
"You're starting to see somewhat of a trend of 'Let's lure a younger demographic here," Cilli said. "And that's not related to the family cruises with all of the, you know, waterslides and and go carts and things like that on it. This is really targeting the Gen Z, Gen X generations."
Shareholders certainly are optimistic about the fortunes of the firms. Norwegian stock was up 80 percent. Carnival and Royal Caribbean shares more than doubled in price during the first half of the year. Royal Caribbean stock has almost returned to its pre-pandemic price.