Florida’s $9 billion cruise industry faces biggest test since 9/11
Sunday’s travel warning by the US State Department against cruising was meant to protect travelers from the novel coronavirus, known as Covid-19. But it also threatens the health of one of South Florida’s largest and most iconic industries, responsible for nearly $9 billion in annual economic impact to Florida — most in Miami-Dade and Broward counties.
That impact is now in doubt in the wake of the global Covid-19 outbreak. Fears about the disease and an oil price war sent stocks plummeting so dramatically Monday that trading on the New York Stock Exchange was halted within minutes of the market’s opening bell. Trading resumed after a brief hiatus, but the breather wasn’t enough to halt the worst one-day point loss for the Dow Jones Industrial Average in history.
While the overall market fell 7% Monday, cruise stocks plunged by 20% and more. Shares in Carnival Corp., the world’s largest carrier, fell 20%, while Royal Caribbean Cruises Ltd. dropped by 25% and Norwegian Cruise Line Holdings plummeted by 27%. The three companies — the world’s largest public cruise holding companies — are all based in MIami-Dade.
Consternation is likely to deepen in the wake of an announcement late Monday by the government of hard-hit Italy that would limit most travel by its citizens. Italy is home to cruise lines MSC and Costa, along with major shipyards and technical suppliers.
The outbreak is proving to be the industry’s greatest test since the Sept. 11 attacks. The bad news has been unrelenting: What started off as a seemingly isolated outbreak on a ship in East Asia has led to the State Department notice advising would-be passengers to avoid sailing altogether.
“This is an evolving story line that is getting more concerning by the day,” said Ned Murray, associate director of Florida International University’s Jorge M. Perez Metropolitan Center. “Passenger demand is being impacted by both fear and government warnings to stay away from cruises altogether.
The severity of the economic impact depends largely on how long the epidemic lasts.
“I think everyone is in same boat: Nobody knows how a global expansion of this virus changes [cruising] demand,” said Jaime Katz, senior equity analyst at Morningstar.
At risk are 150,000 Florida jobs and $7.7 billion in wages, according to a study by the Cruise Lines International Association covering information through 2018, the last year for which data is available. About 60% of North America’s 14.2 million 2018 passengers boarded through PortMiami and PortEverglades. At PortMiami alone, cruise passengers grew by 22% in 2019, port officials said in January.
The industry comprises far more than approximately 10,000 workers directly employed by the three major companies — revenue managers, computer programmers, lawyers, itinerary planners, call-center workers. Cruising also supports food purveyors, florists, interior designers, taxi and Uber drivers, bus companies, luggage handlers, airlines, hotels and travel advisors.
Even before Sunday’s travel advisory, South Florida’s cruise companies had indicated they expected the virus to infect financial results but could not predict how severe the impact might be. In its annual financial filing dated Feb. 25, Royal Caribbean said it could not reasonably forecast the precise impact on its business for 2020 “...Concerns and restrictions over the outbreak are impacting our bookings and are having, and are likely to continue to have, a material impact on our overall financial performance,” it wrote.
The stock market is not waiting to find out. Since late January, when Covid-19 first grabbed headlines, cruise companies have collectively lost more than 50% of their market value. On Monday, Norwegian announced it had secured a loan package worth $675 million in response to the financial pressures it was under.
Wall Street analysts can barely keep up. In its most recent note on the industry, dated Feb. 27, Deutsche Bank analysts wrote: “Simply put, while these stocks have already endured significant selloffs, we cannot realistically recommend buying them. There are too many unknowns, and we think multi-year earnings risk is becoming a greater threat.”
Deutsche Bank went on to warn that the industry could see “lasting, structural” changes to its finances and maintains concerns “about consumers’ willingness to book new cruises and how discounting and promotional activities might impact cruise earnings this year and next.”
Still, travel agents who sell cruises Monday reported anecdotally that while bookings are off for the next few months, clients were still booking cruises for a year from now.
“I’ve seen no cancellations for further-out trips,” said Laurel Brunvoll. owner of Unforgettable Trips, a Maryland travel agency. “I think most of my clients are concerned about the next 60 days.”
Trips to affected areas, like Italy, may slow as summer approaches. “But as far as ‘20-’21, I have actually very full bookings for a year from now,” she said. “And that hasn’t slowed down.”
Morningstar’s Katz said the industry may see a recession similar to the one the airline industry lived through in the wake of the Sept. 11 attacks. In that instance, the airline industry received a bailout from Congress, and subsequently experienced a V-shaped recovery. A representative for Sen. Marco Rubio’s said he was not aware of any conversations related to a cruise industry bailout.
The uncertainty has been compounded in recent days. Just hours after Vice President Mike Pence visited with cruise industry leaders at Port Everglades in Fort Lauderdale Sunday, the U.S. State Department issued its advisory, which stated that “U.S. citizens, particularly travelers with underlying health conditions, should not travel by cruise ship.”
In response, the Cruise Lines International Association, an industry group, issued a statement warning about the economic damage that statement could cause.
“Singling out the travel and tourism industry, and cruise lines specifically, will have significant detrimental impacts on the national and local economies,” it said. “The cruise industry is a vital artery for the U.S. economy, supporting over 421,000 American jobs and contributing nearly $53 billion to the U.S. economy in 2018.”
ASTA, the American Society of Travel Advisors, issued a statement Monday that it would appear before the U.S. House Small Business Committee Tuesday on behalf of its 12,000 members.
For FIU’s Murray, the impact on Florida’s economy could be long-lasting, given how reliant it is on consumer spending.
“We assume the average cruise passenger saves for their vacation,” he said. “Right now, consumers are also being told to avoid long air travel destinations, malls and theme parks as well. Consumer spending levels in all these areas will be diminished or at least suspended for an indeterminate amount of time.”
Alex Daughtery contributed to this report.
This story was originally published March 9, 2020 at 7:20 PM.
