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Travel & Leisure

Coronavirus puts cruise industry in rough waters in Asia

Consumer confidence low after Diamond Princess outbreak and travel curbs

Since the Diamond Princess episode, a cruise blogger has come to believe that "the design of present cruise ships is just not safe enough to contain the spreading of germs and viruses." (Photo by Kento Awashima) 

HONG KONG -- Bob is a Hong Kong blogger known for reviewing cruises on YouTube -- but after seeing what the new coronavirus did to the Diamond Princess, he intends to stick to dry land for a while.

Over 700 travelers and crew members were infected on the Carnival Corporation-operated cruise ship in February, while 3,700 people aboard were quarantined for nearly a month in Yokohama harbor. It was one of the most visible events of the start of the coronavirus crisis, and Bob admits it has "put him off cruising for the unforeseeable future."

"The design of present cruise ships is just not safe enough to contain the spreading of germs and viruses," the 38-year-old told the Nikkei Asian Review, blaming small private spaces and crowded public areas. At least nine ships have reported confirmed coronavirus cases.

Many travelers have also been spooked by headlines referring to cruise ships as a "virus breeding ground" -- and analysts and industry veterans expect the pandemic to pose profound challenges to the cruise industry, particularly for its fast-growing businesses in Asia.

Cruise companies not only have to deal with the immediate financial impact from massive cancellations and travel restrictions -- they also have to provide reassurance that they can enhance onboard infection controls if they are to entice customers back once the crisis subsides.

What happened aboard the Diamond Princess in the news "suggest[s] a high disease transmission rate on ships," analysts at Morgan Stanley said in a research note on Feb. 26. The incident took heavy tolls on new bookings as it coincided with the industry's peak season in Asia.

"This is an unprecedented situation," said Wong Jiali, regional manager of Asia at Cruise Lines International Association, whose members represent more than 95% of the global cruise capacity. "The suspensions of cruise sailings globally will cause inconvenience and disappointment to many."

Before the outbreak, international cruise lines were investing heavily in Asia in response to slow growth in Western markets. Last year cruises made 7,154 port calls throughout Asia, up from 2,842 in 2013, according to CLIA's 2019 Asia report. Passenger capacity grew from 1.51 million to 4.02 million during the period.

But the pandemic has interrupted that expansion. Major cruise lines have either pulled ships out of Asia, or suspended voyages. Princess Cruises, the Carnival brand that operated the Diamond Princess, has suspended all its ocean voyages until May. Viking Cruises has done the same. Asia-based operator Genting Group, which owns Dream Cruises and Crystal Cruises, has also suspended most voyages in Asia.

It is not only cruise lines that have had to react. Hong Kong, a key destination along the Asian cruise routes that last year handled 903,000 passengers, in February suspended operations at its two cruise ship terminals to stop the spread of the virus.

Indeed, passengers can be vulnerable to fast-changing and potentially arbitrary government responses as they deal with the pandemic. Soon after the Diamond Princess quarantine started, a further 1,455 passengers on the Westerdam, a cruise ship operated by Holland America, were in limbo for 12 days after the ship was refused entry to five ports in Asia because of a suspected case of infection. Japan and Thailand initially approved the ship's entry but later backtracked. The report of an infection turned out to be false.

In a recent open letter, Torstein Hagen, chairman of Viking, admitted that the coronavirus had "made travel exceedingly complicated."

"The situation has now become such that operating as a travel company involves significant risks of quarantines or medical detentions," he said.

Kazunori Hori, regional director, Japan, at the Hong Kong Tourism Board, acknowledged the industry was in a difficult spot. "Given the uncertainties under the effect of the novel coronavirus, we believe that 2020 will be a tough year," he said. Hori said the board will work with cruise lines and overseas agents to launch fresh marketing campaigns "when appropriate."

First cruise lines have to work out how to try to survive, as analysts and investors expect major falls in revenue that might force some small operators out of business. Already Luminous Cruising, based in Kobe, has filed for bankruptcy, blaming customer cancellations after the Diamond Princess incident.

The share prices of the world's three largest cruise companies -- Carnival Corporation, Royal Caribbean Cruises and Norwegian Cruise Line -- have fallen by between 70% and 80% since January. Analysts at Japan's Nomura expect a 50% decline in new bookings in 2020 and believe the industry will not fully recover until 2022. The brokerage estimated losses for all three major cruise companies this year, in a research note published on March 10.

Companies are slashing costs to survive. Genting Cruise has cut salaries for its middle managers and more senior executive by 20% to 50%, citing challenging circumstances caused by the spread of the coronavirus.

Beyond the financial challenge comes the need to reassure passengers. Cruise lines that are carrying on with holidays have become more careful, imposing additional screening measures on passengers while making cancellation policies more flexible.

For example, Royal Caribbean has implemented "intentionally conservative" anti-infection and medical protocols, including mandatory temperature screenings for boarding passengers and additional checks for people feeling sick, the company told Nikkei. Intensified ship cleaning, air filtration purification and other sanitization efforts are also being made.

Kelly Craighead, CLIA's president and CEO, acknowledged some passengers would be turned away before they could even start a cruise. "While we regret that these changes will result in the denial of boarding for some of our guests," she said, "travelers should know that their health and safety is the absolute priority for the industry."

In addition to the virus, analysts believe the prospect of further travel restrictions by governments is a big overhang for the industry. Assia Georgieva, of Infinity Research in the U.S., expects travel bans to have "significant impact" on cruise ships' summer sailings if maintained. Passengers from North America and Western Europe accounted for more than 70% of the global travelers, according to CILA's statistics in 2018.

Rebuilding customer confidence could be a big project. "Travelers with little cruising experience now have got a lot of question marks over the safety measures on a cruise ship," said Billy Chuk, director of cruise at Hong Kong-based travel agency Travel Expert. "They will need to have a better idea of the exact solutions on cruise [ships] during public health emergencies," he said.

To reassure customers, Chuk believes Asian governments will also need to play a role, as the abrupt reactions demonstrated by some governments in the Westerdam saga also concern potential travelers.

Edie Rodriguez, chairwoman at Ponant Cruises' Americas brand, believes the industry will "survive and thrive" as it did following other crises such as the aftermath of the 9/11 terrorist attack in 2001, and the SARS outbreak between 2002 and 2003.

"Everything will pass. It's a question of when," said Rodriguez, who has more than three decades of experience in the cruise industry.

She said coronavirus cases on cruises had received disproportionate media attention. "All the cruises were there at the height of the season," when the coronavirus first started spreading in Asia, she said. "Look how many people are on airplanes? God knows what's really happening there? They just don't get tested every time they get on and off an airplane."

She believes the outbreak will trigger an industry consolidation that could lead to the disappearance of some smaller companies.

Some customers who have been at the center of the cruise ship crisis say they would get back on board.

Michelle Au, a Hong Kong passenger who was stranded on the virus-stricken Diamond Princess for a whole month, told Nikkei that she "will not rule out taking cruise holidays" in future.

"It is a good way to travel, especially for older people and families," the 53-year-old said, adding that she believes the cruise industry would review their practices and introduce enhanced preventive measures after the Diamond Princess crisis. Measures such as special arrangements in the buffet, health checkups for crew members, and medical service would be sufficient to alleviate her concerns, she said.

Bob, the Hong Kong blogger, said that while he had lost confidence in bigger cruise ships, "I might consider smaller premium cruises in summer if the situation gets better."

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