Cruise Industry Steams Into Viral Storm

Benzinga

 

For over a hundred years, the cruise industry has battled stormy seas, icebergs, and hidden shoals. But in the past decade, it has faced perhaps its most formidable foe ever: viral outbreaks of gastrointestinal illnesses. Viral outbreaks are threatening passengers, bookings, and profits at a time when an anemic economy is already challenging industry revenues and profits. This viral storm puts each and every cruise ship in a $38 billion industry at risk and presents a serious and elusive problem that has management scanning the horizon for a solution.

The Centers for Disease Control and Prevention, or CDC, reported 53 major outbreaks of gastrointestinal illnesses on cruise ships between 2010 and 2013. In addition, during this January alone, three more outbreaks occurred: Carnival Cruise Line’s (NYSE: CCL) Caribbean Princess returned early amid an outbreak with a total of 178 passengers and crew reported ill; Royal Caribbean's (NYSE: RCL) Explorer of the Seas was ordered to port with almost 700 ill crew and passengers, the highest number of sick people reported on any cruise ship in two decades; and Norwegian Cruise Lines (NASDAQ: NCLH) suffered an outbreak on its Norwegian Star liner. These unfortunate outbreaks, along with other high-profile calamities such as the 2013 Carnival Triumph fire at sea, prompted substantial negative news coverage and dented bookings sharply across the industry. Ultimately, the widespread negative publicity from these incidents has made for a leery public and an industry awash in discounts.

Most striking about the cruise industry’s viral outbreaks is their cause: 49 of the 56 were due to norovirus, also known as Norwalk-like virus, or NLV. In 1972, norovirus was the first virus to be definitively linked to acute gastroenteritis, an inflammation of the stomach and/or intestines that causes stomach pain, nausea, diarrhea, and vomiting. Today, norovirus is the most common cause of acute gastroenteritis in the United States, affecting an estimated 21 million people annually. It is very contagious and can be contracted from an infected person, from contaminated food or water, by touching contaminated surfaces, or by inhaling airborne particles. The virus can spread especially quickly in closed and crowded environments such as a cruise ship. Its protein shell allows it to survive in the open, without a host, for weeks and to resist many sanitizers, soaps, and disinfectants. Moreover, it takes a very small number of viral particles to make an individual sick, and laboratory experiments on human volunteers suggest that people infected with norovirus are still contagious for several weeks after their symptoms of vomiting and diarrhea have passed.In short, norovirus is very difficult to eliminate.

Norovirus is commonly associated with cruise ships becauseof the proximity of passengers to one another and the shared facilities that help fuel outbreaks. According to Peter White, professor of microbiology at the University of New South Wales, in a Bloomberg interview, “Cruise ships are almost a sentinel sensing system for norovirus.” Given this awareness, the U.S. Centers for Disease Control and Prevention established a Vessel Sanitation Program, or VSP, in 1975, and today federal health officials closely track incidents of gastrointestinal disease on U.S. cruise fleets. Under the VSP program, the CDC inspects cruise ships, including both periodic and unannounced operational sanitation inspections, monitors gastrointestinal illnesses, and investigates and responds to outbreaks. All this data is available to the public--and diligent news media make the results easily accessible to consumers.

Cruise industry revenue is influenced by several factors, but an obvious and relevant question is, “how much has been lost due to the negative PR and fear from gastrointestinal illness outbreaks?” In general, because many cruise costs are fixed, after a big incident makes the news, affected cruise lines typically resort to fare discounting to ensure their ships stay filled. Royal Caribbean, for example, reacted quickly to minimize the impact of the Explorer of the Seas incident and took the ship out of service to perform a thorough sanitization to eliminate any traces of norovirus. To compensate passengers, Royal Caribbean promised a 50% refund of the cruise, provided a 50% future-cruise credit, and offered discounted fares for future cruises. Hit hard, the company recorded a quarterly loss of $393 million in the quarter the incident occurred.

More generally, Carnival and Royal Caribbean and their subsidiaries control 63% of cruise industry revenues; they also suffered a significant majority of the cruise outbreaks in the past few years. Hence, they may serve as a good barometer of the severity of the norovirus problem. Following is a table of three years of revenues, gross profit, and net income for the two giants. The data in this chart was extracted from Yahoo Finance and company web sites.

Carnival Corporation

 

 

  2011

  2012

  2013

Revenues

$ 15.8 B

$ 15.4 B

$ 15.5 B

Gross Profit

$   5.5 B

$   5.1 B

$   4.8 B

Net Income

$   1.9 B

$   1.3 B

$   1.1 B

Royal Caribbean Cruises, Ltd. 

 

 

 2011

2012

 2013

Revenues

$  7.5 B

$ 7.7 B

$  7.9 B

Gross Profit

$  2.6 B

$ 2.5 B

$  2.5 B

Net Income

$ 607 M

$  18 M

$ 473 M

 

Overall, in the face of global recession and negative cruise incident publicity, revenues for Carnival and Royal Caribbean have managed to tread water, whereas net income has been steadily sinking for the past three years.  Nonetheless, Cruise Market Watch is projecting 21.8 million passengers globally for 2014, double the number since 2004 and up 25% in the last five years. By 2018, 24.1 million cruise passengers are expected worldwide. These projections could fall short if norovirus continues to crash too many cruise parties.Herein lies the concern: In order for the industry to continue to grow, it must entice new customers. Only about 24% of the U.S. population has ever been on a cruise, according to the Cruise Lines International Association. While cruise veterans realize viral outbreaks are isolated incidents, those who have never cruised are far more wary of taking a first trip. In short, norovirus clearly threatens long-term growth rates of the cruise industry, so the industry must learn to reduce viral outbreaks if it is to achieve growth targets.

Granted, the industry appears to be making efforts to do the right things. As noted above, CDC vessel inspections have been in place for 40 years. Cleaning guidelines and procedures are well established and supported. Food handling processes are rigorous. Cruise lines also screen for flu-like illnesses as passengers come on board, and buffets on many ships are now equipped with trained food handlers to minimize the contact between the passengers and the food. In addition, hand sanitizers are conspicuous throughout ships; NCL even requires their use before entering dining areas. Finally, cruise ships have armies of staff who pay particular attention to high-concern areas such as bathrooms and high-touch surfaces such as doorknobs, handrails, and bathroom fixtures in a continual assault against viral transmissions. Some lines have been quite successful in their fight against norovirus. For example, Disney (NYSE: DIS) cruise ships have passed all VSP inspections in the past decade and have not experienced any outbreaks since 2002.

Despite all these efforts, however, norovirus continues to be a serious industry challenge. There is little doubt that norovirus, now common worldwide, will be carried aboard cruise ships and cause gastrointestinal illness. Consequently, the cruise industry needs new strategies and new tools in its arsenal to stay ahead of the challenge. This creates opportunities for innovative anti-microbial solutions that can specifically handle norovirus.

The use of chemical disinfectants is one of the key means to prevent the transmission of norovirus from contaminated surfaces. When norovirus was first diagnosed on cruise ships, quaternary ammonia was the primary disinfectant of choice. After the same ships experienced repeated outbreaks, investigators realized quaternary sanitizers were widely ineffective against the pathogen. In fact, these sanitizers can be effective while they are wet, but when dry they lose their anti-microbial killing power within minutes.

Chlorine bleach, or sodium hypochlorite, has more recently been considered the best at controlling norovirus, and armies of cleaning staff are regularly deployed to disinfect surfaces potentially contaminated with norovirus by using a sodium hypochlorite solution or other commercial product registered with EPA. Upon examination, however, while these EPA-approved disinfectants do a good job against most bacteria and contaminants, they have been less successful against norovirus, which is particularly persistent, mobile, and returns to treated surfaces. In addition, as with the quaternary sanitizers, the sodium hypochlorite solutions/products take time to work and provide only temporary protection because they are ineffective once dry.

Appropriate hand hygiene is likely the single most important method to prevent norovirus infection and to control transmission. Reducing norovirus present on hands is best accomplished by thorough hand washing with running water and soap. After this, the next line of defense for most cruise lines—like many other public places such as hospitals, schools, gyms, and nursing homes—is a quick squirt of PurellTM sanitizer. Cruise staff dispense the liquid into passengers’ hands as they file into dining rooms and climb onboard following ports of calls, and stationary hand sanitizer dispensers are placed throughout ships. Most mass-market hand sanitizers, including Purell, contain at least 60 percent alcohol in an ethanol-based formula that’s effective at killing norovirus and other germs within 15 seconds. But again, the problem with these antimicrobials is that they dry in less than a minute or two and, because they only work when wet, no longer offer any protection once dry.For this reason, the efficacy of alcohol-based and other hand sanitizers against norovirus remains controversial, with mixed evidence depending on the product formulation and evaluation methodology.

The dominant position of Purell hasn’t stopped rivals from experimenting with products that don’t have alcohol and that can remain effective for several hours. For example, Innovative BioDefense, a Lake Forest, CA, startup, is targeting the cruise industry with its ZylastTM line of hand sanitizer and antisepticsoaps. The active ingredientin ZylastTM is BZT, Benzethonium Chloride, or quaternary ammonium salt. The company claims that ZylastTM is significantly more effective in killing norovirus than alcohol-based products and provides up to six hours of protection, making it suitable for hand sanitizer or soap use on cruise ships.

New disinfectants that are longer lasting and particularly effective against norovirus are now becoming more widely available. One with particularly high efficacy is a silver-based antimicrobial solution from Pure Bioscience (OTN:PURE) that is currently distributed as a general contact surface disinfecting agent across a variety of industries. PURE owns what appears to be the only antimicrobial that offers non-toxic, 24-hour protection from norovirus and a broad spectrum of other pathogens. PURE’s heavily patented new molecule, silver dihydrogen citrate, or SDC, blends silver ions in a unique structure with citric acid to rapidly destroy pathogens such as norovirus, MRSA, influenza, hepatitis, and far more. The most appealing aspects of SDC are that it:

  • Is fast acting and highly effective against norovirus;
  • Provides continuing antimicrobial protection for up to 24 hours even after dried;  
  • Is non-toxic to humans and is granted the safest possible designation of Category IV by the EPA.

For these reasons, SDC is now being targeted to applications in the food industry as a safe and highly effective disinfectant. For the cruise industry, SDC could be an intriguing alternative to attack the problem of viral outbreaks through its use as a hand sanitizer, cabin antimicrobial soap, general purpose contact cleaner, and in food safety.

There may be other antimicrobial solutions on the way. Emerging concerns with the effectiveness and safety of the antimicrobial agent triclosan, used in many antiseptic soaps, cleaning products, and personal products, will likely spur the development of new agents for use in the global personal care industry. Such new agents could potentially be utilized on cruise ships for applications such as hand washing and hand sanitizing.

The cruise industry is highly motivated to protect its passengers and to do everything possible to head off the threats that put $38 billion in revenue and long-term growth plans at risk. Since norovirus will continue to find its way on board, the industry needs new antimicrobial weapons in its arsenal that are longer lasting and particularly effective against norovirus to prevent on-board viral outbreaks. Those suppliers seizing the opportunity to deliver new norovirus solutions will find demand not only in the cruise industry but also in widespread markets across the general economy—and, thus, create timely opportunities for investors. 

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