“We can’t let the cruise lines go out of business,” President Trump said on March 22 as Congress was working out the final details of the coronavirus relief package that would become the CARES Act. But when he signed the bill a few days later, it was written to exclude cruise lines from its lending programs by requiring that borrowers be incorporated in the U.S. and have their employees mostly located here. Critics on both sides of the aisle pointed out that cruise ships fly under foreign flags and cruise lines don’t pay income tax to the U.S.; why, they asked, should we bail them out? That argument carried the day, for now.
It’s worth noting that the cruise lines have not actually asked for a bailout, at least not publicly. Carnival Corporation CEO Arnold Donald told Axios last month he did not want a bailout. But the president has fond feelings toward the industry and, as he has pointed out, there are U.S. firms like suppliers that rely on the cruise lines as customers. And the ease with which the cruise industry can ride out this crisis without direct government assistance will depend on its duration and how long they must wait before sailing again. More phases of coronavirus relief are inevitable, and the question of whether the cruise lines get a specific piece may come up again.
I think the case against a cruise-specific rescue is even stronger than the argument about foreign flags implies. Cruise companies are not pretending to be offshore for tax purposes; they are actually, literally offshore. Sixty percent of global cruise passenger volume is outside North America; the Caribbean, by far the largest cruise market in the world, makes up only about a third of global cruising. Even when cruises depart from the U.S., they mostly call at foreign ports, providing economic development in other countries. And not only are cruises operating outside the constricts of U.S. labor law, they rely mostly on foreign workers doing business in foreign countries or international waters. Cruise lines are a truly global industry, which provides some justification for these firms’ choice to avoid U.S. jurisdiction. But the industry’s true global nature further weakens the argument that U.S. taxpayers specifically should finance its rescue.
I asked Mark Muro, who runs the Metropolitan Policy Program at the Brookings Institution, to look into the domestic-employment footprint of the cruise industry for me. He pointed to Bureau of Labor Statistics data showing 10,300 jobs in the “deep-sea passenger transportation” industry; of those, just over 6,000 are located in the Miami-Fort Lauderdale metropolitan area, where some of the major cruise firms have their head offices. Compare that to total global employment in cruises, which was just over 530,000 full-time-equivalent jobs, according to 2018 data from the Cruise Line Industry Association and you see how little of the industry is actually, physically here.
Of course, there are American jobs not directly in the cruise industry that depend on the cruise industry. Any blow to the cruise industry is also a blow to the cruise ports that handle departing and arriving passengers. These port jobs are also heavily concentrated in Florida, as over half the cruise passengers originating in the U.S. depart from ports in the Miami-Fort Lauderdale area or from Port Canaveral, near Orlando. The CARES Act contained significant rescue funds for airports and transit agencies that will lose revenue due to the stoppage of many business and leisure activities; these cruise ports may be good candidates for assistance in the next relief bill, which will also need to address broad financial needs of state and local governments and many other public authorities.
There are some other specific regional impacts. Alaska cruises account for nearly 5 percent of the world cruise market, and many towns in southeast Alaska are accessible only by sea or air and depend heavily on cruise tourism. Cruises are also economically important for Puerto Rico and the U.S. Virgin Islands. In these places, many people who are not directly employed by cruise lines will be negatively impacted by the cessation of cruising and by any reduction in cruise volume after the crisis passes. But the most acute affects in these places may be during the acute shutdown of cruising during the virus itself, and direct aid to the cruise industry won’t help the ports during that shutdown.
Cruises also generate business for airlines (which fly passengers to and from their cruises) and hotels and restaurants (which cruise passengers patronize in port cities before or after cruises). These businesses are also hurt by the cruise shutdown. It is less obvious they would be hurt by a lingering slowdown in the cruise business after the acute pandemic is over. If consumer demand for vacations returns but cruise volume is still greatly reduced — for example, because people are afraid to board cruise ships — then replacement vacation activities may actually generate more onshore economic activity in the U.S. and more tax revenue for governments. After all, if you take a cruise from Fort Lauderdale, you might stay in a hotel for one night; if you take a beach vacation to Fort Lauderdale, you stay in a hotel for many nights.
One thing that I think hasn’t gotten enough mention in the debate over cruise lines is that they already stand to benefit a lot from coronavirus-related relief policies, even though they are not eligible to get money directly. Many of the U.S.-based firms that do business with cruise lines, such as travel agents, are eligible to benefit directly from the CARES Act, and policies to preserve those firms will help the cruise lines get back on their feet when they can sail again. If those firms have fewer than 500 employees, they may even be able to participate in small-business programs that are much more generous than the support offered to large firms, because they entail loans that are converted to grants if those firms keep employees on the payroll. The rescue package also helps cruise lines by broadly supporting the U.S. economy and protecting household balance sheets, which increases the likelihood that consumers will feel financially able to buy a cruise vacation once the crisis is over.
Perhaps most importantly, the cruise lines benefit from Federal Reserve lending programs, including the ones established under the CARES Act, that aim to stabilize financial markets broadly. Even though entities overseen by the Fed will not be able to lend directly to the cruise lines, their actions to push down the interest rates on corporate bonds and expand the supply of available credit should make it easier and cheaper for cruise operators to borrow money from private lenders. Essentially, when the government buys up bonds from other large corporations, that leaves more private capital around for the cruise companies to borrow.
In that Axios interview, Carnival CEO Donald characterized capital markets as “constrained.” In the crisis, corporate-bond yields have gone up and it’s become more challenging even for financially strong businesses to borrow. But the CARES Act, and prior actions by the Federal Reserve, have gone a significant way to ease that market constraint. It is a good thing that these positive effects flow throughout the corporate sector, even to companies not allowed to participate directly and even to non-American companies. But if that ease does not flow through to cruise lines, that would reflect investors’ having concern about the solvency of cruise companies specifically, perhaps because they wonder if this shutdown will go on for a long time or because they worry all the news stories about stranded cruise ships will lead to persistent consumer distaste for cruising. Because cruising isn’t essential, and because the cruise lines have only a tenuous connection to the U.S., there would be no cause for the government to intervene to fix that problem, should it arise, with taxpayer dollars.