Being homeported abroad would get cruise liners back on the water sooner due to CDC: Analyst

Wedbush Securities Leisure & Travel Analyst James Hardiman breaks down why cruises are shifting where they are being homeported and how it will impact the cruiselines

Video Transcript

- Well, from AMC to another partially reopening trade, the cruise line industry. A jarring anecdote that I saw about people being eager to go back to leisure actually comes from Royal Caribbean. In February they said the itineraries for this year, 2021, were booking at prices higher than where they were selling prepandemic in 2019.

But the challenges that the CDC still has no timetable for resuming cruise travel at least in the United States, might be a technicality. So, here to break down how the cruise line industry is getting around that is James Hardiman. He's a Wedbush Securities Leisure and Travel Analyst. James, I want to begin with just a question about Royal Caribbean, specifically. It says that it's going to resume sailings in June but just not from the US.

So first, how are cruise lines getting around the lack of CDC guidance? And secondly, how eager are people to go along with those kind of roundabout ways to get back on cruises this year?

JAMES HARDIMAN: Yeah. So the answer to the first question is they're going to launch from a place that's not under the jurisdiction of the CDC. So what we've seen a number of different cruise lines do or aim to do is to be homeported in the Bahamas and/or Mexico for Caribbean cruises. Such that, rather than flying to Miami or Texas and then getting on your cruise, you would fly to the Bahamas or Mexico. And ultimately do the same.

That gets them on the water sooner than it appears that all the red tape associated with what the CDC is going to require would allow for. But I do think that's limited, right? They're not going to be able to homeport their entire fleet from some of these small island countries and have it be as convenient for people to fly into.

Having said that, and this leads to your second question, given limited supply-- certainly in the early days when there's just going to be a handful of cruises that are available-- I think it goes without saying that there's going to be more demand than supply. And so I think pricing is going to be robust. But, you know, the million dollar question is, when are they going to be able to open up from the US? Because the industry ultimately can't get back to where they were and where they'd like to be without the approval of the CDC and other regulatory bodies.

- Hey, James. We were talking to the CEO Booking Holdings yesterday. He was on the show telling us how there's just this massive pent up demand for travel right now. And I know you cover a number of parts of the travel and leisure industry, not just cruises. So I'm curious for your perspective just on, what portions of the travel sector do you expect to lead this recovery?

JAMES HARDIMAN: Yeah, I mean, we're already seeing it, right? If people, A, I agree with that notion. That travel is the one activity that people have missed the most.

And so when people feel like they can do it safely, I think they're going to flock back to it. Now everybody has a different definition of what doing it safely would entail. And to that end, what we've already seen, and I think if you talk to the guys at Booking or certainly the guys at Airbnb, most notably, is close in travel has already recovered quite nicely. Drive to travel. And certainly, home rentals because people feel like they can control their surroundings.

So those types of vacations-- where you can put your whole family in a car and go someplace that's within driving distance and then have a whole structure, a whole house to yourself. I think, you know, those bookings are going to be at capacity this summer. It's going to take longer for the fly-in travel to fully recover. And then we're even further away, I think, from international travel going back to where it was. But I think there will be sectors of the travel economy that'll be pretty robust this summer.

- James, how about the idea of a vaccine passport? We've heard this idea floated around. Do you view this as something that you think will help the travel industry's recovery or could it potentially slow it down?

JAMES HARDIMAN: Yeah. It's a question that came up a number of times on the Carnival earnings call today. It is a thorny subject, right? Because you've got certain travelers, certain consumers-- the notion of everybody being vaccinated feels really good. And will give them the confidence they need to take that next step. Then you've got a segment of the population that thinks that that's an infringement on their liberties.

The way I look at it is-- the cruise lines, to return to the cruise lines for a second. To the extent that they mandate that everybody on a cruise ship gets vaccinated, and Norwegian is proposing exactly that, that probably accelerates their ability to get back on the water, right? And that's the name of the game right now. It's, let's do this as quickly as possible because every month that goes by you're talking a sizable cash burn.

Having said that, there is going to be a segment of the population that refuses to do that. And so, can there be an expiration date on this? I mean, I think there's probably going to be an attempt to have your cake and eat it too, which would be--

In the early days having, you know, just to be able to get back up and running, focus on those people that have been vaccinated. But at some point, once we've hopefully reached some level of herd immunity, you know there's going to be a significant portion of the population that just doesn't feel like they should have to be vaccinated. I don't think any of these travel companies want to close their doors to that customer segment.

- Yeah, while at the same time, there's still a pretty impressive backlog of people wanting to get back on cruises at all, which I'm sure is the first problem that the cruise industry wants to get past. Again, thanks so much for joining us to break all that down, James Hardiman, Wedbush Securities Leisure and Travel Analyst.