Impact of COVID-19 on Cruising Industry

This article delves into multiple areas to share our insights into how COVID-19 has impacted cruising industry and how major players stand up against it.

Since the outbreak of COVID-19, the public has been fixating on how cruises have become the places breeding the virus and exacerbating the pandemic over the globe. Undeniably, most cruises are indeed indoor spaces with a large group of people and such condition is conducive for the spread of virus. For example, at the early stage of corona pandemic, cruises like Diamond Princess, Grand Princess, and Ruby Princess were all reported with over hundreds of cases. Due to the nature of cruise indoor configuration and early outbreak on the ships, cruising industry has been taking a huge hit from this pandemic. This article delves into multiple areas to share our insights into how COVID-19 has impacted cruising industry and how major players stand up against it.

Experts have expected that about 17.3 million U.S. cruise customers were lost due to the outbreak of COVID-19.

Early Outbreak

Early outbreaks on the cruise ships generated a lot of buzz on mass and social media, which promoted negative customer perception of cruising globally. More people are concerned about if cruise companies are competent to ensure the health and well-being of cruisers. Among all, Princess Cruise is the one with most exposure at the beginning stage and cruisers on multiple cruise ships under this company has been tested positive for COVID-19. In this sector, we listed out the early primary outbreaks of COVID-19 and the affected cruise companies.

1. February 4: Diamond Princess, Princess Cruise, Japan, 712 cases, 14 Deaths

2. March 9: Grand Princess, Princess Cruise, USA, 122 cases, 7 Deaths

3. March 18: Ovation of the Seas, Royal Caribbean, Australia, 79 cases, 1 deaths

4. March 19: Ruby Princess, Princess Cruise, Australia, at least 852 cases, 21 Deaths

5. March 26: Celebrity Apex, C. de l'Atlantique, France, 224 cases

Besides Princess Cruise, Royal Caribbean, and C. de l'Atlantique, other major cruise companies such as Disney, NCL, Costa Cruises, MSC Cruises, and Carnival, all have positive cases as well.

Plummeting Travel Demand

Experts have expected that about 17.3 million U.S. cruise customers were lost due to the outbreak of COVID-19. From the beginning March until the middle of April, travel anxiety rose rapidly, which was aligned with a decrease in planned cruise spending over the same time period.

New data suggests these behaviors are flattening to a new baseline since early April. Despite the recent positive trend, we still expect that customers will maintain the travel anxiety and lower their planned cruise spending than pre-pandemic behavior for a long time until vaccine is finally proved to be effective after clinical trials.

CDC Attitude

The CDC Director previously announced that there was reason to believe that cruise ship travel may continue to introduce, transmit, or spread COVID-19. Therefore, on March 14, 2020, the CDC Director issued a No Sail Order for cruise ships. CDC commended that the Cruise Lines International Association (CLIA), the leading industry trade group, for their willingness to voluntarily suspend cruise ship operations from U.S. ports of call beginning on March 13, 2020 for the next thirty (30) days. Now this order has extended.

How has each major player in the cruising industry responded?

Flexible Cancellation Policies: Many cruise companies such as Carnival, as well as companies in adjacent industries such as JetBlue (airline Industry) has implemented flexible cancellation policies. Some companies announced that booking and refunds will be given in form of credit so as to better retain customers .

Improvement on healthcare Segment:

1) Genting: Requires a doctor’s note from passengers over 70; Infrared fever detectors on gangways; Face masks for all passenger-facing crew members; Common-area disinfecting as frequently as every two hours

2) MSC: All of the company’s ships now have COVID-19 tests on board.

3) Carnival: Carnival has really high standards on cruise ships in dealing with any kind of health risk. It has medical reports, temperature scanning and deep cleaning.

Change in pricing: We have observed that there is an increase in bookings in the last 45 days for 2021 when compared with 2020 bookings made in 2019. These data shows that consumers are receptive to incentive and pricing incentives currently offered and are excited to get back to cruising.

Brand communication strategy: We found out that only 15% of consumers don’t wanna hear from brands during this pandemic period. The majority of consumers still want to hear about the brand's responses and reactions towards Covid-19. It could be donations, or news about infrastructure improvements, or healthcare investment. However, at the early stage of pandemic, many cruise companies stay muted in order to avoid unnecessary exposure on media.

Comparison study between 9/11 and COVID-19

We believe that a comparison study between 9/11 and COVID-19 is worth understanding how market would respond to an unexpected crisis and uncertainty. Similarly, right after 911, the airline industry took a huge hit–the overall flight travel demand reduced by over 30%. We argued that there were two main reasons behind it: first being people’s fear about security and second being people’s concern about inconvenient travel experience (such as longer line for security check etc.).

However, we also observed that low-cost carriers such as Southwest captured about 6% more market share during this time and the secret of such bump was because these companies were improving their customer experience while other major network carriers like Delta were doing the opposite.

Therefore, we think that cruise companies should be more transparent and proactive in communicating what the brand has been doing to ensure customer well-being and health onboard. More importantly, cruise companies should also underscore how the brand is making effort to minimize bureaucratic frictions and offer the same standard customer cruising experience in the future.

What strategies are currently on the table for players to better combat and survive under the pandemic?

Pricing Strategy: Flexible cancelations are highly influential in the booking process and recommend increasing advertising of the Cruise with Confidence program for this reason. In addition, currently many cruisers, even active cruisers, were not aware of cruise companies’ payment options.

Another option to entice more cruisers back to cruising is to increase Buy-One Get-One (BOGO) offerings and we found out that these deals are highly appreciated by lapsed cruisers. Offering vouchers to use on a future cruise of equal or less value would be an option to consider.

However, we also suggest that discounting pricing strategies should only be offer in the short-term. Evaluate and balance between pricing and bookings at the same is also crucial as it is not ideal to get all cruisers flock back to the ship as soon as possible.

Marketing Strategies: Millennials are 10% more likely to make travel decisions influenced by Instagram. However, social media doesn’t promote either positive or negative customer perception on cruising. Thus, cruise company should continue improve credibility and quality of marketing content on Instagram, Facebook, and Twitter. Cruise companies should also consider leveraging travel influencers on Instagram and YouTube to stay in touch with cruisers

Product Offerings: We identified that millennials have an increasing desire to have immersive experiences unique to the region they are visiting, especially involving food and cooking. Therefore, we suggest that cruise companies canintroduce small groups eco/agro-tourism excursions or offer on-board cooking class involving regional cuisines.

We also found out that customers may have a higher expectation to room service and food delivery service. As social distancing may become the new norm, buffets and dining rooms may receive more scrutiny. Therefore, improving room service and delivery service can enhance cabin connectivity and improve the overall customer experience.

Improvement of Health Standards: It’s inevitable for cruise companies to reevaluate the health screening procedures and policies on-board and revamp certain hardware and equipment to better adapt to the new norm. Here we list out several options that cruise companies should consider to better protect cruisers from health risks.

a. Bar passengers traveling from high-risk areas

b. Conduct pre-board health screening

c. Provide masks and hand sanitizers

d. Limit number of passengers on each trip to allow effective social distancing (if possible)

e. Utilize other technologies like QR code to combine health tracking and contact tracing

f. Disinfect all public areas at regular intervals

g. Limit the number of passengers allowed in each venue at a time (if possible)

h. Develop activities that facilitate social distancing like cooking classes, private excursions, etc.

i. Promote in-room dinning and happy hours outside of rush hours for meals

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Source:

1. CNN. "2 cruise lines bar people with Chinese, Hong Kong or Macau passports from boarding their ships as coronavirus spreads." https://www.cnn.com/2020/02/07/us/coronavirus-cruise-ships-protocol/index.html Wikipedia. "COVID-19 pandemic on cruise ships." https://en.wikipedia.org/wiki/COVID-19_pandemic_on_cruise_ships

2. Cruise Market Watch. “2018 Worldwide Cruise Line Market Share.” https://cruisemarketwatch.com/market- share/.

3. VOX. "How the coronavirus has affected airlines, hotels, and cruises in one chart." https://www.vox.com/recode/2020/3/10/21171509/coronavirus-covid-19-airlines-lodging-cruises-chart

4. CDC. "Interim Guidance for Mitigation of COVID-19 Among Cruise Ship Crew During the Period of the No Sail Order." https://www.cdc.gov/quarantine/cruise/management/interim-guidance-no-sail-order.html

5. Miami Herald. "How many coronavirus cases have been linked to cruises?" https://www.miamiherald.com/news/business/tourism-cruises/article241914096.html

6. Los Angeles Times. "Believe it or not, people are still booking cruises for next year." https://www.latimes.com/business/story/2020-04-09/despite-covid-19-pandemic-cruise-fans-are-booking-trips-for-next-year

7. Statista. "Consumer views on brand communication in light of coronavirus outbreak in the United States as of March 2020." https://www.statista.com/statistics/1110140/us-consumer-views-on-brand-communication-due-to-covid-19/

8. Business Insider. "JetBlue's CEO said the fallout from the coronavirus outbreak is worse than after 9/11. Here's what airlines did then, and what they're doing now." https://www.businessinsider.com/coronavirus-travel-ban-us-what-airlines-did-after-911-2020-3

9. NY Times. "Coronavirus Is Causing Chaos for Travel Influencers." https://www.nytimes.com/2020/03/13/style/travel-influencers-coronavirus.html