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Cruise ship companies are still paying for COVID interrupting their business

LEILA FADEL, HOST:

Cruise ships are making a comeback. South Florida's cruise companies are buoyed by a surge in passengers, but they're still paying for the pandemic interrupting their business. From member station WLRN in Miami, Tom Hudson reports.

TOM HUDSON, BYLINE: This is what PortMiami's Terminal B sounded like in May of 2021. It was a beautiful day to cruise. The sun was shining. It was in the mid-80s with a slight breeze. Two ships sat dockside, but there were no crew members, no stevedores, no passengers. The cruise business was still closed because of COVID-19.

(CROSSTALK)

HUDSON: And here's what PortMiami sounded like a couple of weeks ago as thousands of passengers lined up to board the Disney Magic for a five-day cruise. The cruise business has come, well, cruising back, stronger than it was before the COVID-19 virus shut down sailing, costing tens of thousands of jobs and billions of dollars.

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JASON LIBERTY: I'm thrilled to share with you this morning our strong second-quarter results and another step change in the trajectory of our business.

HUDSON: That's Jason Liberty, the CEO of Royal Caribbean Group, based in Miami. He was speaking on a conference call after the company released its second-quarter financial results last month.

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LIBERTY: We not only delivered another outstanding quarter that significantly exceeded expectations, but are also increasing our full-year earnings guidance by another 33%.

HUDSON: The cruise operator expects this year's profits to be stronger than it predicted just a few months ago. And it's not alone in riding this wave of passenger demand.

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JOSH WEINSTEIN: There was much to celebrate in the second quarter.

HUDSON: This is Josh Weinstein, the CEO of Carnival Corporation, based in Doral, Fla.

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WEINSTEIN: We just hit all-time highs for bookings and customer deposits. And remarkably, we are still experiencing a phenomenal wave season which started early, gained strength and is still going strong midway through the year.

HUDSON: And it was a similar message from Harry Sommer, the CEO of Norwegian Cruise Line Holdings in Miami, though the company's forecast was less than anticipated.

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HARRY SOMMER: We achieved record revenue of 2.2 billion in the second quarter, an increase of 33% over the same period in 2019.

JAIME KATZ: I think that these companies have really been able to figure out how to run in a much more efficient way.

HUDSON: This is Jaime Katz. She's a stock analyst at Morningstar.

KATZ: This time off has really given these management teams a way to think about how do we optimize revenue management? And I think that has permitted these companies to come back with really diplomatic pricing tactics.

HUDSON: Diplomatic pricing - instead of simply offering deep discounts to fill up the ships, package together amenities.

(SOUNDBITE OF SONG, "I WANT TO BREAK FREE")

QUEEN: (Singing) Oh, I want to be free.

HUDSON: This allows the cruise ships to add or subtract items based on demand. The more people buying, the fewer amenities included in the base price.

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UNIDENTIFIED PERSON: And so much more.

HUDSON: Strong demand has allowed the companies to keep prices up. And they need the cash. This trio of South Florida-based cruise giants have lost tens of billions of dollars combined since the beginning of the pandemic. All three were profitable in the second quarter, if you don't count the hundreds of millions of dollars they spent paying interest on loans. But they have to pay that interest, and it takes a big bite out of profits. Those loans kept the companies afloat when they weren't allowed to sail. Together, these three big cruise companies owe almost $70 billion to lenders.

PETER TROMBETTA: It's still massive, still, you know, much higher than it was pre-pandemic.

HUDSON: Pete Trombetta is a senior analyst with Moody's, the credit rating agency. The companies have spent more paying interest on those loans this year than they have spent paying for fuel for their ships.

TROMBETTA: They had to borrow to stay alive. So it's going to take time for them to start tackling that debt. But they're definitely on the right path.

HUDSON: This big rebound of cruising is big for South Florida, with two of the top three busiest cruise ports in the world. Already this year, the number of passengers moving through Port Everglades is up 77% compared to a year ago. The Fort Lauderdale port has been renovating a terminal that will be dedicated to Disney in time for the winter cruise season later this year. And this comes after renovating a separate terminal earlier this year for Royal Caribbean's celebrity brand, says director Jonathan Daniels.

JONATHAN DANIELS: We're actually hiring additional people. We're creating our own cruise operations department, which the port has never had.

HUDSON: More passengers mean more revenue for Miami-Dade and Broward counties in Florida, the owners of the ports. Cruise passenger revenue in Miami fell 95% when ships were ordered to stop sailing. It already tops $100 million this fiscal year, on par with 2019, the year before the pandemic put a stop to cruises.

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UNIDENTIFIED REPORTER #1: Now to a developing story in South Florida, where two cruise ships carrying passengers with coronavirus have been allowed to dock. For some on board...

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UNIDENTIFIED REPORTER #2: Another cruise ship with COVID-positive passengers has docked at PortMiami.

HUDSON: Some of the early COVID cases and headlines came from cruise ships.

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UNIDENTIFIED REPORTER #3: After weeks in limbo at sea, overnight, two Holland-American cruise ships...

HUDSON: Some ships were quarantined and not allowed to dock for days over fears of passengers spreading the virus on shore.

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UNIDENTIFIED REPORTER #4: The Coast Guard is currently monitoring more than 50,000 crew members on various ships that are in U.S. waters.

HUDSON: Thousands of crew members remained on board other ships for sometimes months after the industry was ordered to suspend operations. It added up to plenty of negative publicity at the time, but it has not hurt the optimism now from the industry's CEOs.

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UNIDENTIFIED CEO #1: We are clearly gaining momentum on an upward trajectory.

UNIDENTIFIED CEO #2: Clearly, the very healthy demand environment we are seeing is quite encouraging.

UNIDENTIFIED CEO #3: This acceleration in demand, the record booking levels really are increasing our optimism about 2024.

HUDSON: In order for that optimism to be realized, the industry needs to continue attracting first-time cruisers and converting them into repeat customers. Worldwide, one out of every three cruise passengers are at least 60 years old. But the average age for passengers sailing in the Caribbean, where ships from South Florida travel, is in the mid-40s. Joe Cilli is an assistant dean at Florida International University and creator of the school's Cruise Line Operations Management degree.

JOE CILLI: You're starting to see somewhat of a trend of let's lure younger demographic here, and that's not related to the family cruises with all of the, you know, waterslides and go-karts and things like that on it.

HUDSON: Shareholders certainly are optimistic about the fortunes of the firms. Norwegian stock was up almost 80% in the first half of the year. Carnival and Royal Caribbean shares more than doubled in price during that same time period. In fact, Royal Caribbean stock has almost returned to its pre-pandemic price.

For NPR News, I'm Tom Hudson in Miami.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

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Tom Hudson