Carnival Cruise Line shares thoughts on the next black swan event

The cruise industry has contingency plans for all kinds of potential disasters.

Cruise lines are ready to act when they believe political unrest makes an area unsafe for passengers. That is why Royal Caribbean, Norwegian, MSC Cruises and some smaller cruise lines have pulled out of Israel during the ongoing conflict.

They are also always prepared for an outbreak of disease on their ships, even if they don’t like to talk about it. They have a clear set of protocols to follow when this happens and know exactly how to minimize the spread.

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You might not hear them talk about it, but there’s no scenario where you can plausibly imagine that the big cruise lines didn’t have their game planned. This is what made the Covid pandemic so unimaginable.

Even though it happened, the cruise industry and the world at large could not see how long its impact would last. For months it always seemed like something would happen to slow, then stop, the spread.

First there was social distancing and then there were lockdowns. Nothing really worked (mostly because Americans never fully committed to either option) and the pandemic simply endured until vaccines were introduced.

For the cruise industry, it was a black swan event.

“A black swan event, a phrase commonly used in the world of finance, is an extremely negative event or occurrence that is impossibly difficult to predict. In other words, black swan events are unexpected and unknowable events” , according to Corporate. Institute of Finance.

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Covid vaccines have made cruising viable again.

Image Source: Helen H. Richardson/MediaNews Group/The Denver Post via Getty

Covid could not be predicted

Until Covid vaccines became available, the cruise industry had no way to function. Socially distanced cruises didn’t make financial sense and just weren’t that much fun.

Vaccines changed that and gave cruise lines a chance to return to normal operations. This was a gift, but it also showed how vulnerable the cruise industry was.

And that’s something you might think industry executives like Carnival CEO Josh Weinstein would worry about. He addressed his concerns, however, in response to a question from Morningstar’s Jaime Katz during Carnival’s second-quarter earnings call.

“Good morning. I have a quick question. Given that the environment has been so strong for you guys, what keeps you up at night? Is it regulatory risk? Is there any ESG risk? Is there nothing right now? I’m just curious to I hear something on the other side of the attack,” he asked.

Weinstein’s response was surprisingly confident.

“Look, I’m in 2020 and I have three kids, so it’s not really keeping me up at night. When it comes down to it, I mean anything in our control, I feel very comfortable that as a team we can handle everything, Honestly, I don’t worry too much about the black swan, because you can’t spend your life worrying about the black swan, otherwise you will have a miserable life.

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The carnival plans to be prepared

While Weinstein said he doesn’t spend his time worrying about the next black swan event, that doesn’t mean Carnival isn’t continuing to be as prepared as possible for whatever may come next.

“So our attitude is we’ve got to keep performing. We’re going to take what people throw at us and the world throws at us and we’re going to adapt and tweak what we need to do as necessary and move forward,” he said. “And the biggest part of this business from that perspective is that we’re mobile. And when you have that mobility, it gives you a lot of flexibility to figure it out.”

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One of the biggest ways Carnival has prepared for the future is by improving its balance sheet. Weinstein addressed that in response to a question about the impact of a potential rate cut.

“But really, from a rate cut perspective, we’re in an environment where for us, we have an improving credit profile. And we hope that the interest rate, future interest rates will come down not just because of the interest rate cuts, but because the credit improvement and the lower credit spreads, and in addition, we would expect to do some refinancing, and these refinancings it should reduce our interest expense,” the CEO added.

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