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- Carnival Corp. started out 2020 with high hopes for smooth sailing, in terms of its finances.
- But the largest cruise company has found itself facing unprecedented challenges thanks to the coronavirus pandemic.
- Three highly publicized and fatal COVID-19 outbreaks occurred on Carnival vessels: the Diamond Princess, the Grand Princess, and the Zaandam.
- Now employees say morale within the company is sunk as questions linger over why Carnival continued to allow its fleet to sail well into March.
- Visit Business Insider’s homepage for more stories.
As the MS Zaandam lurked off the coast of Florida, Mateo laid in his cabin and recorded videos for his children. He gave them his best wishes for the birthdays he might miss. He reminded them of his eternal love. A COVID-19 outbreak had swept through the cruise ship he worked on, sickening hundreds of passengers and crew members. Now Mateo felt ill and was left confined to his cabin.
In the decade he’d spent working in the cruise industry, Mateo said he had never felt so close to death.
Still, the cruise-ship employee told his family not to worry. He assured them he’d fight to get back home. But Mateo also filmed his goodbyes on his phone, in case he couldn’t fulfill that promise.
The longtime cruise worker had served customers on board luxurious ships for over a decade. His real name is not Mateo. After verifying the worker’s identity, Business Insider chose to withhold his real name to protect him from professional retaliation.
Mateo expected the Zaandam’s South American voyage to proceed like any of the similar cruises he’d worked on. Even with news of a virulent new virus spreading out of China’s Wuhan province and infecting passengers and crew on the Diamond Princess and the Grand Princess, the cruise-ship employee said he had put his trust in his employer, Carnival Corp.
From the early days of the Zaandam’s trip, crew members were tasked with chemically sanitizing chairs, tables, and other surfaces — an extra precaution. Mateo said the crew was not given masks or extra personal protective equipment, though.
Any trust Mateo had in Carnival evaporated a week or so into the Zaandam’s journey, when crew members began falling ill. Mateo said he was alarmed by the apparent reluctance on the part of both Zaandam’s leadership, Holland America, and the line’s parent company, Carnival, to take action.
“I told my colleagues, ‘This is completely wrong,'” he said. “‘Why don’t they announce that the coronavirus is on board?'”
About that time, he said he began to notice a change in the demeanor of the crew left working after the captain ordered guests to their state rooms.
Novices and veterans, young and old, all had the same expression: a pinched, frightened look. None of the crew members, Mateo included, wanted to report for duty in the ship’s dining hall as fever ripped through the ship’s decks. But he did, and so did coworkers beginning to show the symptoms of COVID-19: coughing, faintness, and fever.
“It was like a war,” Mateo said. “Like a real war.”
Mateo didn’t die. But “a nice guy from housekeeping” by the name of Wiwit Widarto did after being rushed to a Florida hospital. Four passengers also lost their lives on the voyage, though it is unclear whether all of them died of COVID-19. Mateo said he would never work for Holland America — or Carnival — again.
“They didn’t care about the crew members or about the guests,” he said.
Carnival is the biggest cruise company. With nine signature cruise lines and a nearly 40% market share as of 2018, Carnival Corp. was in store for a soaring 2020. At the beginning of the year, the company was fresh off a $3 billion profit (good for a 14% profit margin) — its fourth year in a row with a profit margin of at least 14%.
Just six months later, the dream of another record-breaking year for Carnival is dead, and its foreseeable future looks grim. Since the pandemic struck, the company has faced a combination of layoffs, furloughs, and pay cuts, and has been left to sell off many of its longtime cruise ships and partner with onetime rivals. What’s more, it’s also come under intense scrutiny for how it handled the outbreaks of COVID-19 on its ships.
“As a cruise company, they were supposed to protect crew members and guests,” Mateo said. “They never protected us.”
Coronavirus stock Ignored warnings
The harbinger arrived in Princess Cruises’ inboxes on February 1. A Hong Kong port representative wrote the cruise line to inform them that a passenger had tested positive for COVID-19 after leaving the ship in Hong Kong, The New York Times reported. The port official advised Princess Cruises to “kindly inform the ship related parties and do the necessary disinfection,” The Times said.
That was over a month before the World Health Organization declared the coronavirus a pandemic. Cruise ships had long dealt with bouts of the norovirus.
The corporate account of how Princess Cruises and its parent company, Carnival Corp., initially reacted changed as criticism began to mount, according to Bloomberg. But regardless of what the team at Princess Cruises initially thought of the February 1 email, the Diamond Princess continued its cruise across the Sea of Japan. Passengers gathered on deck to take in sunshine, sea air, and poolside fun, shared meals with new friends in restaurants, and packed in together to catch onboard shows.
The mingling continued for days, even after the captain came on the ship’s intercom to pass on the news about the disembarked passenger who had contracted COVID-19.
Then, four days after Princess Cruises had received its initial warning, the captain of the Diamond Princess ordered passengers to remain in their rooms, The Washington Post reported.
By then, a fever had spread through the ship, with hundreds of passengers testing positive for COVID-19. The number of sick would only swell from there, as would the number of dead. Passengers would remain trapped on the ship until March 1. Hundreds fell ill, with at least 13 people dying of COVID-19, according to Japan’s Ministry of Health.
For some Carnival employees, the February 1 email had not been the first sign of danger. Fears over the coronavirus had been gathering since as early as December, though the plight of those aboard the Diamond Princess had driven home the seriousness of the crisis for many.
But for one former contractor who worked in a tech-related role in Miami, it was the Grand Princess that made the scale of the pandemic clear.
“That’s when it started hitting us,” he said. “This is going to have a significant impact.”
The outbreak on the Grand Princess had occurred on the ship’s February 11 cruise to Mexico. The ship was held in quarantine off the shore of San Francisco for two weeks. At least four crew members and passengers died, the Department of Health and Human Services told The Morning Call. Many passengers declined to be tested for the virus in order to expedite their trips home, the San Francisco Chronicle reported, citing an official familiar with the testing.
The outbreaks on the Diamond Princess and Grand Princess resulted in over 800 COVID-19 cases and at least 10 deaths, the US Centers for Disease Control and Prevention estimated in March.
At one of Carnival’s offices in Doral, Florida, a former employee and a former contractor told Business Insider they became concerned because some coworkers returned to the office from ships that had experienced COVID-19 outbreaks. It wasn’t until mid-March that Carnival told employees they could work from home.
“Personnel movement from ship to shore should have been scrutinized and looked at a lot closer,” a former Carnival Corp. shoreside employee said.
Coronavirus stock No way home
Princess, reeling from the loss of life on the Diamond Princess and the Grand Princess, announced in March that it would pause its global operations for 60 days. Other cruise lines, both Carnival-owned and otherwise, soon followed. By the end of March, the cruise industry had voluntarily shut down. In April, the US government made it official, banning cruise ships from US waters for 100 days.
But that only meant the companies were not beginning new cruises.
The virus would leave Carnival and competitors’ cruise ships stranded for months, with passengers and crew members unable to disembark in ports fearful of inviting in a fresh wave of COVID-19 outbreaks.
And of that fleet of stranded ships, Diamond Princess and the Grand Princess were not the only Carnival vessels to incur deadly outbreaks.
Behind the Princess ships, Holland America Line’s MS Zaandam was the most widely publicized afflicted ship from Carnival’s fleet. After it was banned from South American ports, the ship suffered a major COVID-19 outbreak on board. Four passengers and one crew member died over the course of the voyage and the ship’s eventual disembarkation in Fort Lauderdale, Business Insider reported at the time.
Carnival and Holland America responded to the initial outbreak by dispatching the MS Rotterdam to rescue apparently healthy passengers from the Zaandam once it became clear that the illness present on board was indeed COVID-19. Carnival also wrangled with different authorities, including the Panama Canal Authority, South American governments, and Florida state officials and port authorities, to return the passengers on the Zaandam and the Rotterdam to the US.
But the entire episode left many crew members stranded and feeling used and at risk. Crew on board the Rotterdam told Business Insider that they had not been told that they would be picking up potentially ill guests from the Zaandam, risking infection themselves. And while Carnival ultimately managed to convince federal and state authorities in Florida to allow healthy passengers off the ship, it would be weeks before many crew members received similar relief.
Even the situation on board Carnival ships without any fatal COVID-19 cases could still be bleak. On Holland America vessels stuck at sea, crew members had to purchase their own internet access.
Coronavirus stock A mad scramble to shore up finances
The chaos that unfolded on Carnival’s ships raised the possibility of financial disaster, forcing the company to move quickly to shore up its cash reserves.
At the end of November, Carnival had $518 million in cash, enough to last less than a month without revenue, based on 2019 spending levels. By the end of February, that number had jumped to $1.3 billion, but widespread cancellations meant passengers demanded refunds at unusually high levels — even if many of them accepted a credit for a future cruise instead of cash — while revenue plunged.
To make matters worse, unlike the airline industry, cruise companies received no assistance from the US government. It likely didn’t help that Carnival, Royal Caribbean, and Norwegian — the industry’s three biggest companies — register their businesses and ships outside the US, often in countries with lower tax rates and less stringent labor laws.
“The government assistance was for US corporations, and the cruise-line industry tends to be incorporated offshore,” said Paul Golding, an analyst at Macquarie Capital who covers the cruise industry. (Macquarie owns Carnival stock.)
A Carnival representative said the company spends millions of dollars with US suppliers and vendors and paid over $700 million in taxes and fees in the US in 2019. In its 2019 annual report, Carnival said it believed its North America cruise business was exempt from federal income taxes but not state income taxes.
As the coronavirus spread across the company’s ships and threatened its future sailings, Carnival tapped credit lines and sold equity and debt. But the offerings weren’t on the most favorable terms for the company, as it sold shares at $8, just 15% of their price a year earlier, and bonds at an 11.5% interest rate, more than double that found on most of the company’s existing debt.
“They were in a liquidity grab and maybe a little bit nervous that that liquidity would dry up if they didn’t tap into it,” Jaime Katz, an equity analyst at Morningstar who covers the cruise industry, said. Those fears did not come true, Katz added, and Carnival has since June announced about $4 billion in additional debt with interest rates ranging between 8.5% and 10.5%.
In an April interview with CNBC, CEO Arnold Donald suggested Carnival’s initial fundraising efforts had worked, saying the company had enough money to last the rest of the year without any revenue. But Carnival wasn’t done trying to bolster its finances.
In May, the company announced widespread layoffs, furloughs, and pay cuts — a month after slashing pay for ship employees — despite Donald’s assurance in March that Carnival would not have to make such a move through at least the end of June. The cuts hit every part of the company, including Donald, who cut his pay in half for the rest of 2020, and his executive team, which saw its pay reduced by 25% through the end of the year.
The Carnival representative said the company avoided layoffs and pay cuts for as long as possible and resorted to them only when it became clear its business would not return to normal for an extended period of time.
The moves did not appear to give investors much confidence. At the end of May 14, the day the layoffs were announced, Carnival stock was trading at $12.27 per share, up just $0.01 from the day before but down from $54 a year earlier.
The Carnival representative said the company planned to eventually reach the double-digit returns on invested capital it achieved before the coronavirus, adding that such a result tends to affect the company’s stock price.
Coronavirus stock The king of Carnival
While investors may have doubts about whether Carnival can reclaim the record earnings Donald has overseen, the company is unlikely to seek a new leader to guide it through the post-pandemic era, Katz said. Carnival was in good financial shape before the coronavirus, she said, and Donald, like the CEOs of Royal Caribbean and Norwegian, is not responsible for the coronavirus’ existence.
“None of them are at fault for COVID-19 shutting the industry down, and they’re all trying to mitigate it the best way that they can,” Katz said. “I think it’s going to be hard to pin this on the CEO.”
The Carnival representative said Donald “will continue to play a critical role in the company’s long-term success going forward.”
In interviews with Axios, Bloomberg, The New York Times, and CNBC, Donald has largely deflected criticism, or even the possibility that the company may have made mistakes over the past six months, describing the fallout from the pandemic as a historic crisis that Carnival has handled as well as could be expected.
“This is a generational global event — it’s unprecedented,” Donald told Bloomberg in April. “Nothing’s perfect, OK? They will say, ‘Wow, these things Carnival did great. These things, 20/20 hindsight, they could’ve done better.’ … We’re a small part of the real story. We’re being pulled along by it.”
Eight current and former Carnival employees told Business Insider they largely agreed with Donald’s characterization, saying the company has done the best it can in responding to a crisis that no business or government body could have been prepared for.
But four others raised questions about how Carnival could have allowed ships to sail into February and March as the seriousness of the pandemic came to light.
“As soon as this had gone out, and as soon as people had started hinting at closing borders, instead of just closing China, they should have halted all sailings at that point,” a former Holland America salesperson who compared Carnival’s ships to “floating petri dishes” said.
“You should have stopped then because had they done that, there wouldn’t have been the Ruby Princess, the Grand Princess, all the scares and the people stuck out at sea for weeks. There wouldn’t have been any of this. All the crew would have been home.”
A Carnival representative defended the company’s decision to keep sailing, saying that during that period, other forms of travel and entertainment continued to operate throughout much of the world.
Coronavirus stock A time of fasting
Though Carnival may have to wait many months before a full return to service, it does not appear consumers will entirely abandon the company. During the company’s second-quarter earnings call in July, Carnival Chief Financial Officer David Bernstein said reservations for 2021 cruises were “within historical ranges” at prices that were only slightly lower than normal, despite Carnival’s decision to stop advertising. And about 45% of Carnival’s 2021 bookings were from new customers, suggesting the coronavirus has not scared off people who have never been on a cruise before.
And Carnival — like other cruise lines such as Disney and Royal Caribbean — has earned the devotion of cruise enthusiasts, frequent passengers who spend much of their vacation time enjoying themselves on cruise ships.
But it’s not clear how much longer Carnival will have to wait to return to service. Since Princess announced a two-month operational pause in March, Carnival’s brands and their competitors have repeatedly pushed back their return dates as coronavirus cases have continued to rise throughout the world. The US is the cruise industry’s most important market, and for now, it’s difficult to tell when the CDC’s ban on cruise ships, which in July was extended through the end of September, will be lifted, Golding said.
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“I think a lot of it will depend on the trajectory of the virus,” he said.
While there’s uncertainty around when Carnival will be able to resume normal operations, neither the company nor the cruise industry is in danger of going under, said Bob Levinstein, the CEO of CruiseCompete, a website that allows cruise customers to compare prices offered by travel agents.
The Carnival brand and the institutional knowledge embedded in a workforce that can handle the complicated logistics involved in managing a cruise ship have enough value that investors will be willing to continue funding the company, even if it remains unable to sail for longer than expected, Levinstein said. During the company’s second-quarter earnings call, Donald said he was confident Carnival could survive into late 2021 without any revenue.
“There’s really too much money to be made in this business for the business to go away,” Levinstein said.
But when cruises do resume, they may look different. Carnival has considered restricting capacity on its ships when they return to service, two sources close to the matter previously told Business Insider. And Holland America and Royal Caribbean may, at least temporarily, eliminate self-serve buffets, according to an audio recording obtained by Business Insider and Royal Caribbean’s CEO.
“We continue to work closely with the CDC and other health authorities, as well as top experts in science and medicine, on the enhanced protocols needed when we restart cruising,” the Carnival representative said. The representative added that there would be “a number of new protocols in place” on an AIDA Cruises sailing scheduled to begin on August 5, including preboarding temperature checks, social-distancing measures, and more robust cleaning procedures.
But many of the crew members who survived shipwide COVID-19 outbreaks are reluctant to go to sea again. And while most of the thousands of crew members stranded in the pandemic have reached shore, not everyone is home. (The Carnival representative said the company had repatriated more than 82,000 crew members and was close to doing the same for an additional 1,600 ship employees as of July 30.)
Because of COVID-19 travel restrictions, Mateo remains stranded in a country that is not his place of residence. The longtime cruise-industry worker said Holland America’s attitude about his plight seemed to be: “It’s your problem.”
After he spent two weeks quarantining in a hotel, he had to set out to find a place to rent. For now, he must wait until his home country lifts travel restrictions before he can reunite with his family.
“It feels a long, long, long way away,” he said.
- Read more:
- Cruise-obsessed vacationers are desperate to set sail, even after high-profile coronavirus outbreaks on ships. We spoke with 18 cruisers about why they can’t wait to cast off.
- Carnival-owned Holland America is charging unpaid crew workers stuck on its ships $40 for internet packages, and employees are livid
- Carnival employees reveal what they really think of CEO Arnold Donald as the cruise industry is brought to its knees by coronavirus
- Carnival’s CEO said the company has enough money to make it through the rest of 2020 without bringing in any revenue