Wed | May 27, 2020

Cruise stocks sink after missing out on virus relief

Published:Sunday | March 29, 2020 | 12:28 AM
The Norwegian Encore cruise ship is docked at the Port of Miami on Thursday, March 26, 2020, in Miami, Florida.
The Norwegian Encore cruise ship is docked at the Port of Miami on Thursday, March 26, 2020, in Miami, Florida.

Shares of cruise lines have taken on more water after the industry’s major players were shut out from government assistance as part of the major economic-recovery bill signed in law by US President Donald Trump on Friday.

The US$2.2 trillion bill passed by Congress says companies getting loans or loan guarantees must be “organised” in the United States under American laws and have a majority of their employees based in the US.

Carnival Corp is registered in Panama, England and Wales; Royal Caribbean Cruises is chartered in Liberia; and Norwegian Cruise Line Holdings is flagged in Bermuda.

In trading Friday, Carnival’s stock dropped 19 per cent. Royal Caribbean fell 15 per cent and Norwegian sank more than 23 per cent.

The cruise lines could still get another chance for a lifeline from taxpayers.

Cruise ships and airlines are two of the industries hit hardest by the new coronavirus outbreak, and Trump has spoken repeatedly about helping both. But while US passenger airlines got special treatment from Congress – they will be able to seek US$50 billion in grants and loans under the economic-stimulus bill – the cruise industry was left high and dry.

Critics say the cruise lines registered in other countries to avoid US taxes and shouldn’t be bailed out now by American taxpayers.

Cruise lines cancelled sailings in Asia when the outbreak was mostly limited there, but bookings dropped and cancellations rose just about everywhere as COVID-19 grew into a pandemic. Extensive coverage of ill passengers on quarantined ships added to the industry’s image problem.

Representatives of the industry trade group, Cruise Lines International Association, and individual companies did not immediately comment.

GRANT ELIGIBILITY

American Airlines CEO Doug Parker says the company is eligible for about US$12 billion of the US$50 billion in grants and loans set aside for passenger airlines under the economic-rescue bill. In a video to employees, Parker said some of the terms of the grants aren’t yet clear, “so we are not yet positive that American will meet those conditions,” including that airlines not furlough or lay off workers until September 30.

Parker said schedule cuts due to light travel demand will mean “many groups of employees” will work a minimum number of hours “for the next few months”. It was not clear, however, whether the reduction in hours was the potential hurdle to American getting grant money. American plans to operate at about 40 per cent of capacity in April and only 20 per cent in May because of the steep fall in travel. Parker said current flights are on average less than 15 per cent full.

Southwest Airlines CEO Gary Kelly says the company is losing big money on every single flight as travel demand slumps amid the virus outbreak. Kelly said in a company video that the grants set aside for airlines under the economic-rescue bill make the company more confident it’ll avoid layoffs. Southwest says it has never furloughed anyone in its history.

The new economic stimulus legislation will speed government payments of US$1,200 to most Americans and increase jobless benefits for millions of people thrown out of work. Businesses big and small will get loans, grants and tax breaks.

– AP