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81% of luxury passengers plan to take a cruise in 2021: Rpt

Yahoo Finance’s Alexis Christoforous and Jason Ader, CEO of SpringOwl Asset Management, discuss the travel industry amid the coronavirus pandemic.

Video Transcript

ALEXIS CHRISTOFOROUS: Well, that fast spreading strain of coronavirus now emerging from England has prompted fresh travel restrictions, dealing yet another blow to prospects for a global economic recovery. As a result, we are seeing investors dumping shares of major airlines and cruise lines today. I'm joined now by Jason Ader. He is CEO of SpringOwl Asset Management and a former Wall Street leisure analyst. Jason, good to see you. So how optimistic are you that the vaccine can help bring the travel industry back to pre-pandemic levels?

JASON ADER: Well, great to see you. Thank you for having me. And how optimistic am I? I think the vaccine is going to help a lot. I think right now there's very little people want to do other than finally go out and travel. And so that's a great thing. And so I think we'll be a year from now, and things will start to feel a bit more like normal.

The cruise industry specifically has some more challenging issues. And the vaccine may not be a panacea for the cruise line industry versus airlines or leisure hotel where the outlook is a little bit better.

ALEXIS CHRISTOFOROUS: Talk to us more about that, because I understand over at SpringOwl, you conducted a survey, and you actually asked people who had never cruised before how likely they would be-- I don't know what the timeline was in the coming year, or did you look out further than that-- and was it something like 80% of people said they would not be interested in going on a cruise?

JASON ADER: It was a spectacular number. And that's part of the problem the perception of the cruise industry is that it's a floating petri dish. And that's a bad perception. I give the cruise industry, the companies-- Carnival, Royal, Norwegian-- tremendous credit. They've made unbelievable innovation on surface cleaning, air filtration. They're doing an amazing job.

But just recently, there was a false positive test in Asia, and the ship went out, and Royal Caribbean's ship had to come back very quickly. It didn't get great headlines. There's a very high percentage of cruise customers who are older. That demographic is going to be slow to recover to the cruise ship market.

In addition to that, there's a lot of great prices around the leisure travel market. And so the price benefit that the cruise industry has historically provided just isn't as competitive. So that's one part of the problem for the cruise industry. The second part is it costs a lot more to keep the ships clean.

And these programs for surface cleaning and air filtration just don't come without added expense. And the time to clean and the utilization of the cruise ship is going to be lower for the foreseeable future. So to get back to normal levels of profitability, it just doesn't take demand coming back, it takes pricing, not just to go to where it was, but to even greater than where it was to offset the added cost of air filtration and surface cleaning. And honestly, that's going to take quite some time.

ALEXIS CHRISTOFOROUS: Let's talk about that. I mean, I know it's hard to put a timeline on these things, but when might the cruise industry return to pre-pandemic levels? If you've got something like 80% of people who've never cruised before saying, you know what? I don't even want to get on a ship.

JASON ADER: Yes. Well, it's my prediction-- we're about to start 2021-- I know we're all excited about that. But I don't think you'll see a return to peak profitability in the cruise industry until 2030. And that's just not a function of demand coming back, because I do think the cruise industry will see people want to go on cruises. But the prices will be a challenge. People aren't going to pay a premium for it right away.

And as prices increase over time, the cost-- the cost of cleaning, the cost of surface cleaning, the cost of air filtration, the time out of service to do it is not to be overlooked. And that's really where I struggle with the stock price performance of the cruise industry relative to the likely outlook that it's going to be a very long road to get back to where we were in 2018 and 2019 before COVID-19.

ALEXIS CHRISTOFOROUS: I mean, that is-- if you're right, that's an awfully long time for these struggling cruise lines to wait. Do you see consolidation in the industry? Do you see some of the cruise line operators just vanishing because they're not going to be able to survive?

JASON ADER: You may see some capacity come out of services. If you look at-- the other challenge, and we haven't even talked about it, is there were a lot of ships that were ordered in 2016, 2017, 2018-- you can't build these ships overnight. It takes several years of planning. So we're also facing pretty significant industry capacity over the next few years, which will require more ships to come out of service just to absorb that capacity.

So I don't see-- it's a very concentrated industry at the top with Royal Caribbean, and Carnival, and Norwegian having a very high market share. It doesn't really leave much room for consolidation. But you may see some significant capacity come out of service. And I think prices will stay low for quite some time.

ALEXIS CHRISTOFOROUS: All right-- Jason Ader of SpringOwl Asset Management, thanks so much for being with us.

JASON ADER: Thank you.