The US Government’s $2tn Covid-19 package designed to save jobs and financially support companies will not include cruise businesses due to tax loopholes exploited by the industry.
News of President Trump’s decision to omit major cruise companies from the US Covid-19 support package came as a surprise, especially after previously stating he would provide help to the industry.
A lack of financial support from governments could be catastrophic with revenues limited to bookings. To make matters worse, negative media attention in recent weeks will greatly reduce the number of customers wishing to book cruise holidays.
Some cruise liners have already resorted to making redundancies and putting staff on furlough to try and stay afloat in the coming months. The US Government’s latest decision will only increase the strain being felt by all companies operating within the industry.
Common tax loopholes have come back to bite cruise companies
Carnival Corporation, Royal Caribbean and Norwegian Cruises all operate out of Miami. However, all are registered in Panama, Liberia and Bermuda respectively.
This makes the decision to not include cruise companies in the Covid-19 stimulus package easier for the US Government as they are foreign corporations.
In 2019, Carnival paid income tax expenses of $71m on $20.83bn in revenue. Royal Caribbean paid $36.2m in taxes on $10.95bn in revenue. Norwegian actually showed a tax benefit, money it is owed, of $18.86 million on $6.46bn in revenue.
By exploiting tax loopholes, cruise companies have not endeared themselves to the US public. This, again, pushes liners to the back of the queue when needing government support.
Companies have begun securing their own finances in preparation
Securing finance is now critical for the cruise industry. Royal Caribbean Cruises has agreed on a $2.2bn loan facility with banks to shore up cash flows, while Saudi Arabia’s sovereign wealth fund has acquired a minority stake in Carnival Corporation estimated to be worth $370m. By securing finances early, cruise businesses give themselves the best opportunity of survival amid growing uncertainty.
Securing finances will help to navigate the unparalleled drop in passenger numbers in the weeks and months to come. Once companies get through the toughest period, they will then begin to address the long-term issues they face. It could be much more difficult for smaller companies to find investors than the big players within the industry. This has led to the boss of Fred Olsen Cruise Lines calling on the government to provide more support.
It is not yet clear whether there will be support from governments to cruise companies further down the line. However, it is clear that many companies will be battling for survival in the months ahead.