Cruise Industry

What a post-Covid-19 recession might mean for the cruise industry

During the last financial crisis in 2008, none of the major cruise lines failed, and the travel sector proved largely resilient, but this crisis is far deeper, and hitting the industry much harder, putting it in uncharted waters.

The cruise industry has never been tested like this before

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Four ships have already been scrapped, even more have been sold and up to a dozen are likely to face the breakers yard before the end of the year, while two previously profitable and growing cruise lines have declared bankruptcy and the vast majority of the global cruise fleet remains in cold lay-up.

When faced with calamity its reassuring to look to the past and see that a company or industry has previously come through worse. The cruise industry is the modern predecessor to the passenger shipping lines of the 19th and 20th centuries, which survived the First World War, the Great Depression and the Second World War, all in the space of a single century. And just after the turn of the 21st, it came through the financial crisis of 2008.

Four cruise ships have already been scrapped

It has never faced anything like this though. In both world wars the global passenger liner fleet proved indispensable for troop movement, and the economic damage wrought by the Great Financial Crisis in 2008 was minor compared to the economic downturn major economies around the world are facing.

Two cruise lines have gone bankrupt (CMV, pictured) and Pullmantur

The only period that provides some precedent for the present is the Great Depression of the 1920s and 30s, but that was a decades-long event that wasn’t coupled with a global pandemic, requiring all cruise ships to remain at sea or in port, unable to take on passengers for fear of spreading the virus.

While cruise lines have reported that they are seeing demand for future cruises comparable to last year, it’s unclear how the combination of the virus and the economic crisis will impact this in future.

The uncertainty over the safety of cruising and the effect of increased unemployment and a preference for saving, rather than spending on luxuries like cruises, especially among millennials, the industry’s future market, is a perfect storm for the cruise industry.

Delayed deliveries of newbuilds and the scrapping of older ships is an early indication of what the cruise industry is preparing for – a travel market similar to that faced by the shipping lines of 1929.

During the Great Depression, several ocean liners were scrapped in order to free up funds for the payment of ships already under construction, or in the case of White Star Line, the order for the ocean liner Oceanic, a groundbreaking, truly revolutionary ship of her time, was cancelled so her steel could be recycled for the construction of the smaller ships Georgic and Britannic.

RMS Queen Mary was launched during the height of the Great Depression (thanks to a government bailout)

That same year, the construction of RMS Queen Mary came to a halt due to financial difficulties at Cunard Line, and the following year Italy’s four largest passenger shipping lines were forced to merge in order to secure a government bailout.

The four lines, Navigazione Generale Italiana (based in Genoa), Lloyd Sabaudo (based in Torino), and Cosulich (based in Trieste), were all companies with half a century more of history, all had come through the First World War and thought they’d faced the worst the century had to offer.

While no cruise lines have outright cancelled or halted newbuild construction projects, and Carnival Corporation, the largest cruise company in the world, has ruled out any mergers between its cruise brands, or consolidation of any kind, it has just 12 months of cash to continue to operate without any revenue, and is accumulating astronomical debt in the process.

SS Normandie, one of the greatest ocean liners of the 20th century, was built during the Great Depression

However, some of the world’s greatest ocean liners were also launched during the darkest days of the Great Depression, largely because they were ordered and building had started well before the downturn, much like the current economic crisis, which started with cruise shipyards holding a record order book of 120 vessels.

Tom Stieghorst predicts in the article linked above that a (then hypothetical) recession would have a greater impact on the world’s shipyards than the cruise industry itself.

Of course, he was writing in 2019 well before the current coronavirus pandemic and accompanying economic crisis emerged. However, his outlooks holds true of 2020, and provides some reassurance:

This time around, with only two yards left, things may be better. All the ships on order with Fincantieri and Meyer Werft would likely get completed, and since the orderbook now stretches to 2027, any recession would likely be over well before the pipeline gets depleted. Maybe some options would be dropped, but as long as the export financing for firm orders holds up, they will get built.

Scott Laird wrote a great article for Travel Pulse tracking the ways in which the Great Depression transformed the passenger shipping industry and actually spurred on the emergence of the modern cruise industry.

The business travel that the trans-Atlantic trade relied on dried up, leaving ocean liners carrying fewer passengers, while Prohibition in the United States created a huge appetite among those who still had some money, for foreign getaways.

While Americans with a new familiarity for travel and the means to do so could have struck out on domestic adventures, Prohibition drove thirsty Americans to foreign shores on foreign ships. As soon as foreign-flagged ocean liners cleared the territorial limit six miles offshore, the bar was open, and passengers could drink their way to Europe.

Prohibition drove demand for cruises in the 1920s, giving rise to the ‘booze cruise’

Repurposing ocean liners as cruising playgrounds for the middle and upper classes in the United States gave shipping lines a new means of generating revenue, paying for the completion of newbuilds that would serve as marque ships of state for what remained of the regular ocean liner service.

As mentioned, during the first half of the 1930s, RMS Queen Mary entered service for Cunard Line, along with Europa for Norddeutscher Lloyd (predecessor to Hapag Lloyd), which went on to capture the Blue Ribband.

The United States began to emerge as a major player in the passenger shipping industry, launching Manhattan and her sister ship Washington for United States Lines, both the largest ships ever built in the US at 24,000-gross tons.

SS Manhattan of United States Lines

P&O’s Strathaird made her maiden voyage from Tilbury (UK) to Sydney, Australia via the Suez Canal and White Star Line’s Georgic made her maiden voyage on the Liverpool to New York route.

By the end of the Great Depression, two of the world’s most famous and most luxuruous ocean liners were launched, Normandie in 1934 and Queen Mary in 1936. After the end of the Second World War RMS Queen Mary became part of the legend that formed around the Golden Age of the trans-Atlantic liner service.

SS Normandie, meanwhile, was in service for just a few years before being requisitioned for service as a troop ship, a task she never got to perform as she was caught fire and capsized during conversion.

But it is the older, lesser-known ocean liners turned cruise ships between 1929 and 1939 that gave rise to modern cruising. It was during this period that the cruise bug began to bite, with more and more people getting a taste of travel on a big ship and loving it.

Early marketing for cruises in the 1920s focused on the economy of it, the value for money, with full board and entertainment all included in the fare, but by the end of the 1930s, the advertising of onboard amenities read like a thoroughly modern cruise program: Palm Reading, Swimming Pools, Dance Lessons, Card and Casino Gaming, Port Shopping Lectures and Fine Dining were all highlighted. The cruise bug had caught on, and people were becoming hooked on these ever-bigger ships and ever more exotic ports.

Of course, the modern industry faces an altogether different bug, a virus that has proven itself to be particularly dangerous when spread in a cruise ship environment. While cruise lines have implemented enhanced health protocols and sanitation programs, few cruise destinations are prepared to open their ports back up to cruise ships.

Costa Fortuna in Genoa – Costa Cruises is planning to return to cruising in the Med

Major cruise markets such as Italy and Germany are experimenting with cruises to nowhere and cruises that only visit domestic ports, severely curtailing the appeal of a cruise holiday for much of the potential market, while also presenting cruise lines with another opportunity to adapt.

The size and glamour of the ocean liners of the 1920s and 30s is what led so many to test the waters of cruise holidays in the early days of the industry, and today’s cruise ships on order are the largest ever built. They are destinations in themselves, with gin distilleries, roller coasters, tall water slides, ziplines and as many dining and drinking venues as any major resort.

The future cruise ship will be more about size and variety of attractions than ever before

This might sustain demand for cruises long enough for the industry to whether the crisis, just as it weathered the Great Depression largely intact. But, it won’t look the same. Masks and social distancing aside, the traditional, laidback, low-key cruise ships of yesteryear, such as Carnival’s Fantasy-class, are likely to go the same way as the ocean liner.

The future cruise ship will be more about the bells and whistles and onboard attractions than ever before, because in a future cruise industry where cruise destinations might once more start turning ships away, the ship itself will need to be marketed as the destination.

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