Pullmantur Cruceros, a joint venture between Royal Caribbean and Cruises Investment Holding, has filed for reorganization under Spanish insolvency laws. Cruises Investment Holding owns 51 percent of the three-ship Spanish cruise line, while Royal Caribbean owns the remaining 49 percent. 

Pullmantur’s board of directors issued a statement that reads in part, “Despite the great progress the company made to achieve a turnaround in 2019, … the headwinds caused by the pandemic are too strong for Pullmantur to overcome without a reorganization.”

While the bankruptcy filing impacts only a small cruise operation, it does raise the question — what impact will the pandemic headwinds have on the cruise industry as a whole?

Yesterday, we posted about an announcement on Friday by the Cruise Lines International Association (CLIA) that the major cruise lines were pushing back restarting their US operations until at least September 15th.  The on Mondy, Carnival Cruise Line pushed back its return to service in North America until at least early October.

How long can the cruise industry survive the pandemic shutdown? In the beginning of May, Norwegian Cruise Line, the world’s third-largest cruise operator, raised doubts about its ability to keep running as a business. Subsequently, they announced that L Catterton, a private equity fund, invested $400 million in the firm. The day after the announcement, the company said it successfully raised more than $2 billion in a mix of stock and debt, ensuring the company can last at least the next year without any revenue if necessary.

The other two cruise line giants, Carnival and Royal Caribbean, have each raised substantial capital to help them weather the coronavirus storm.  

Nevertheless, CNBC reports that the ongoing suspension of operations and poor outlook for the future prompted ratings agency Moody’s to downgrade its rating of all three companies’ unsecured debt to speculative grade.

“Following recent downgrades of the only two investment-grade cruise companies — Carnival and Royal Caribbean — our rated universe for this group is now entirely spec grade, an indication of the sector’s growing duress,” Pete Trombetta, a Moody’s assistant vice president, said on June 4.

Trombetta authored a report that predicted cruising will be suspended for most of 2020 and that when sailing does resume, the companies will suffer from a poor economic environment, among other factors. He added, however, that the three major publicly traded cruise companies have raised enough debt and equity to survive “at least through 2020.”

Will the major cruise companies’ capital be sufficient? How long will they be able to hold out?  A new report suggests that the coronavirus pandemic could last for two years. Would the cruise industry survive a second wave of the pandemic? 

Thanks to Alaric Bond and Karen Lorentz for contributing to this post.