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The CDC Is Playing a Game of Chicken With Cruise Lines

Royal Caribbean (NYSE: RCL) isn't going to rock the boat. All eyes were on the country's second largest cruise line with Carnival (NYSE: CCL) (NYSE: CUK) and Norwegian Cruise Line Holdings (NYSE: NCLH) canceling upcoming voyages earlier this month. Would Royal Caribbean stick to its November sailings, cutting it close with the Centers for Disease Control and Prevention's (CDC) No Sail Order that was recently extended until Halloween?

If Royal Caribbean did nix voyages, would it follow Norwegian Cruise Line into just calling everything off until December? Would it be better served by walking in the footsteps of Carnival with its clever hiking trail of pushing out all but a few sailings that it will test out next month? Carnival has six ships expected to sail come November on limited itineraries out of ports in Miami and Port Canaveral in Florida.

In the end, Royal Caribbean decided to play it safe. It followed Norwegian Cruise Line's path, deciding to wait until December to resume operations at its four cruise brands. Some of its Hong Kong-tethered sailings will get going next month, but that won't move the needle. Some of its brands are canceling entire winter schedules in certain international markets. In short, it's more pain for Royal Caribbean. It's another kick of the can instead of aiming for the field goal posts.

Image source: Royal Caribbean.

Open waters

The CDC and the three major cruise line operators are playing a game of chicken. Instead of cars racing to the brink of extinction, we're talking about a regulatory body going up against a 200,000-gross-tonnage cruise ship. We know who wins this game. We also know who loses.

Crews and employees lose paychecks. Passengers lose patience. Investors lose hope -- and eventually money. It's not fair to paint the CDC as the villain, though. It's doing everything it can to keep the pandemic in check. Even with an advisory committee set up by Royal Caribbean and Norwegian Cruise Line willing to heavily dilute the cruising experience for the sake of safety, it isn't enough to lower the gangplank and let revenue-generating passengers start sailing.

Cruise ships have proved to be a hotbed of COVID-19 outbreaks in the past, and according to the CDC it's still happening through Europe and Asia on cruises that recently started sailing again. Despite health and safety protocols on these ships, folks are still contracting the pesky virus that shows no signs of going away on its own anytime soon.

Along the way, the industry will keep trying to interest consumers in rebooked trips that continue getting canceled. This will get old. They will raise more than the billions that they have each already panhandled for, but it will come at the cost of either high interest expense costs or shareholder dilution.

Things are hard all over with a pandemic and a global recession. Now all eyes are on the CDC and just Carnival for a showdown in early November. Bon voyage.

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