Reducing the occupancy of ships once the industry is permitted to return to sailing is an integral first step toward combating the spread of COVID-19. But fewer passengers means fewer cruises fares sold. And most significantly, reduced occupancy means reduced onboard revenue from alcohol sales, casinos, gift shops, specialty restaurants and shore excursions. I have always doubted that the current cruise excutives would ever voluntarily reduce the number of customers who buy cruises and drink, eat and gamble on their ships.
Financial Times reported yesterday that NCL CEO Frank Del Rio and Royal Caribbean’ CEO Richard Fain, who recently announced a joint “Healthy Sail” panel, warned of a “severe blow” to the industry if social-distancing measures that reduce the number of passengers on ships are required.
“One of the hallmarks of the cruise industry is that we always sail with full ships. It’s one of the basic tenets of our business model,” cruise executive Del Rio told the Financial Times. Lower capacities “would be a severe blow” to financial performance, he added. CEO Fain said that it is a “simplistic approach” to “assume that you simply take what happens on land and apply it on to the sea.”
CEO Del Rio is right, of course, at least about the industry always operating its increasingly huge ships at 100% occupancy in order to maximize profits. Royal Caribbean made a business decision over a decade ago to embark on building the largest cruise ships at sea which hold record numbers of passengers and crew. Ships like the Oasis of the Seas, Allure of the Seas and Symphony of the Seas, among others, led Royal Caribbean to record profits year after year.
Humongous ships filled with paying customers and operating non-stop is indeed a cornerstone of the wealthy cruise industry’s business model, together with incorporating in foreign countries and registering ships in feckless flag of convenience countries like Panama and the Bahamas in order to avoid U.S. taxes, U.S. wages and labor laws, and U.S. safety regulations.
Huge cruise ships packed with passengers seems to be one of the factors which led to the CDC issuing its “no sail” order due to the pandemic. In its first no sail order in March, the CDC noted that the “high volume of people” who are assembled and intermingle together is a key feature of cruise ships which increases the risk of COVID-19 transmission.
In the past several months, there has been scuttlebutt that cruise lines will operate their ships at as little as 40% occupancy depending on the type of ship. And some cruise executives, like Richard Fain, previously discussed having fewer passengers on board their ships to allow for social distancing. “My guess is that when we start, we will limit the number of people who can go onto a ship just as my neighborhood restaurants are beginning to open up,” he told CNBC six weeks ago. But CEO Fain has changed hs mind before, like when he recently called the wearing of mask a “silly idea” after his company said face masks would be used throughout his fleet if the Royal Caribbean “faceview” were accepted as a patent.
It remains uncertain what precautions the RCCL/NCL “Healthy Sail” panel will submit to the CDC at the end of next month. But one thing is certain, the cruise executives will try to convince the CDC to let them sail their ships full of guests. The EU protocls, which members of the “Healthy Sail” panel were partially responsible for creating, has no mention of reducing the number of passengers anywhere in its 49 pages.
As we mentioned in our article yesterday, Dr. Scott Gottlieb who NCL and Royal Caribbean hired to co-chair the “Healthy Sail” panel, stated last March that “it’s an awful risk to pack a lot of people on a cruise ship.” But now, after he finds himself on the cruise lines’ payroll, he changed his tune to agree with NCL’s CEO Del Rio that a cruise ship can be among the “safest place on earth.”
Del Rio collected over $85,000,000 in the last five years. NCL collected nearly $1,000,000,000 in profits, with Royal Caribbean profiting with $1,800,000,000 and Carnival with $3,200,000,000. In March, Del Rio stated that any restrictions on cruise operation should “immediately stop.” CEO Fain has collected an average of $12,000,000 a year in compensation each year for the last 6 years for a total of approximately $72,000,000. He collected $14,358,919 in compensation in 2019, $12,422,715 in 2018, $13,343,413 in 2017, $10,405,684 in 2016, and $12,013,878 in 2015.
There is no way these cruise lines will collect billions of dollars in income or the CEO’s will receive tens of millions of dollars in compensation each year with their ships half or a quarter filled. That’s why when the so-called “Healthy Panel” comes out with its protocols next month, there will be no mention of reduced occupancy. The CEO’s will try and pack their ships with as many paying passengers as their ships will hold.
It’s is hard to take the cruise lines’ claim seriously that the “health and safey of guests is their highest priority.” It seems more accurate to say that the cruise tycoons’ wealth rather than their customers’ health remains their primary conern.
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Photo credits: Richard Fain – Richard Fain Interviews Governor Mike Leavitt About RCL & NCLH’s Joint “Healthy Sail Panel” via Cruise Critic; Frank Del Rio – Opening Bell, January 11, 2018 from CNBC.