Crystal Cruises: Stormy Weather Ahead

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Crystal Cruises' Parent Company, Genting Hong Kong, is Suspending All Payments to Creditors of ~$3.4 billion, amid the Covid-19 pandemic, to preserve liquidity. Does the moratorium on payments to creditors include Crystal Cruises clients who are still owed refunds from cruises cancelled due to coronavirus? Officially, no. This is the official statement from Crystal Cruises' VP of Marketing and Sales:

“Crystal’s parent company, Genting Hong Kong, is engaged in a financial restructuring and fundraising exercise to address liquidity issues that resulted from its global fleet not operating because of COVID-19. It is important to understand that the company is not going out of business. Whatever option our parent company pursues, it will allow Crystal to operate its business. Additionally, we have always been committed to honoring our contractual obligations with guests and travel partners, including the processing of refunds.

While we have extended our suspension of global voyages until the end of the year, we are working with government and health authorities in our key markets to resume sailing when it is safe to do so and we look forward to welcoming our guests back on board at that time.”

That said, Genting Hong Kong (which in addition to Crystal Cruises also owns Dream Cruises and Star Cruises) shares have lost about 55% of their value since December 2019, plunging 38% on August 20, 2020 after the announcement of the suspension of payments to creditors. This comes as Lim Kok Thay, the Malaysian chairman of Genting Group, who owns 76% of Genting HK shares, pledged nearly his entire stake as collateral loans. The sharp plunge of the shares on Thursday risked a margin call, and if it forces a sale of certain assets at depressed prices, could become a vicious cycle driving the stock lower.

Already, other parts of the Genting empire in Malaysia have implemented group-wide salary reductions and have cut thousands of jobs.

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Reinforces Wisdom of Taking Refund Over Future Booking Credit

Crystal Cruises and Genting Hong Kong are certainly not the only cruise companies that are struggling. Norwegian Cruise Lines earlier this year warned it might go bankrupt, although that was before it managed to raise $1.8 billion in convertible bonds and senior notes, albeit at expensive interest rates. That said, Norwegian's cash burn rate has increased, given the interest payment on debt, increased costs given the pandemic and changing restrictions on crews, etc. Carnival Cruises has raised over $10 billion, although as with Norwegian, the extra liquidity came with high interest rates. Royal Caribbean has also raised billions of new debt. While for now all three cruise lines have the liquidity to operate for at least another year, even without cruising, it's highly unlikely that summer or even fall or winter 2021 will look anything like pre-pandemic cruising, both in terms of the actual experience for cruisers, and in terms of demand and cruise line economics.

A few sailings in Europe this summer, particularly Norway's Hurtigruten, caused multiple coronavirus outbreaks among crew and passengers, which doesn't bode well for restarting cruising among other major cruise lines.

The U.S. CDC Do Not Sail order is through at least September 30, 2020, but is likely to be extended. Even after there are one or more Covid-19 vaccines, the inherent nature of cruising, particularly on the larger ships, means greater risk than a traveler would typically encounter in an aircraft with HEPA filters or hotels that have installed HEPA filters in guest rooms and moved dining outdoors.

Another aspect to consider, beyond the risk of any given cruise line's potential bankruptcy, is whether the overall experience post-pandemic may be compromised to the extent that it would have been better to take a different kind of vacation altogether.

Also keep in mind that the Chase Sapphire Reserve and other Chase credit cards no longer cover cruise line or travel supplier bankruptcy.

We've continued to recommend to our clients to take a refund rather than a future cruise credit for their cancelled cruise, and when restarting travel, to select destinations and hotels that allow for greater privacy, more nature and outdoor activity, and more social distancing than is typically found on cruise ships.

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