Cruise Industry Restart Must "Get It Right" Or Risk Setbacks, Says Analyst
When the cruise industry begins its restart, it will have one chance to get things right. Failing to do so will cause further damage to the public's perception of the sector, says Morgan Stanley analyst Jamie Rollo.
In a new report, Rollo says three things need to happen for the cruise industry to resume sailing, but he cautioned there's a risk it might not all come together until 2021, and possibly later.
First, he writes, the industry needs international travel to resume and ports to reopen to ships.
Second, the industry needs to convince health authorities and governments that ships are safe to carry passengers.
"We think it will be challenging for cruise ships to structure social distancing in a way that does not put off passengers or make the business model unviable," Rollo writes.
Finally, the industry needs to convince customers that ships are safe, with no risk of coronavirus infection or onboard ship quarantine.
"When sailing does resume, it might take only a small outbreak on one ship to cause global operations to be suspended again, so the industry needs to get this right first time," he writes.
Morgan Stanley models a return to cruise operations in the fourth quarter of this year, but expects it will take six months for the industry to rehire crew and reposition ships.
"We also assume 2021 revenue yields will be depressed by weak demand, travel uncertainty, and the use of credits given on 2020 cancellations," it noted.
Therefore, Morgan Stanley now views 2021 as a transition year.
Rollo also wrote that due to operating losses and high capital expenditure commitments, more equity could be needed.