President Trump on March 27 signed into law the $2 trillion stimulus package designed to save millions of jobs and bail out companies devastated by the coronavirus. But when the dust settled, one hard-hit sector of the travel industry was left on the sidelines: the major cruise lines.
Even politicians who demanded that the industry clean up its environmental record as a condition for receiving taxpayer funds were a little stunned by the news.
“I have to admit I was surprised,” Senator Richard Blumenthal, Democrat of Connecticut, said in an interview, “given the president’s support for the cruise industry.”
So why were the major cruise lines left out? These are the three primary reasons.
They’re foreign corporations
In the weeks before the bill’s passage both Democrats and Republicans expressed reservations about bailing out the major cruise lines because they are not American corporations and are largely exempt from paying income taxes.
“Very emphatically and clearly, the intent of Congress is to exclude the cruise line industry from any assistance with this bill,” Mr. Blumenthal said.
Under the law, companies can only qualify for a loan if they are “created or organized in the United States and under the laws of the United States.”
While the major cruise lines are all headquartered in Miami, they are incorporated in foreign countries: Royal Caribbean is registered in Liberia, Norwegian in Bermuda, and Carnival in Panama.
“If you literally go to the port of Miami and you actually look at the flag on the stern of the ship, you won’t see a U.S. flag flying in the breeze,” said James Walker, a maritime lawyer. “You’ll see the flag of the Bahamas or the flag of Panama.”
The arrangement allows the major cruise lines to operate under the wage and labor laws of the country they’re registered in, paying employees many times less than what they would in the United States. It also grants them access to a century-old provision in the tax code that largely exempts them from paying federal income taxes.
In 2019, Carnival paid income tax expenses of $71 million on $20.83 billion in revenue. Royal Caribbean paid $36.2 million in taxes on $10.95 billion in revenue. And Norwegian actually showed a tax benefit, money it is owed, of $18.86 million on $6.46 billion in revenue.
The cruise industry defended its tax and employment policies. Bari Golin-Blaugrund, a spokeswoman for the Cruise Line Industry Association, a trade group that represents the industry, said that the cruise industry supports more than 421,000 jobs in the United States and that it follows tax rules for international shipping which have decades-long roots in U.S. tax law.
Questions over environmental record
Earlier in March, a group of eight senators published a letter saying that the cruise industry and airlines should only get a bailout if they took more steps to protect the environment. Days later, a coalition of environmental groups sent a letter to Congress asking lawmakers not to bail out the cruise industry, citing a poor environmental record.
“The cruise sector has a decades-long track record of breaking environmental laws and paying the fines as a matter of doing business,” said Kendra Ulrich of Stand.earth, one of the environmental groups that signed the letter to Congress.
She noted that Princess Cruise Lines, a Carnival Corporation subsidiary, was fined $40 million in 2016 for illegally dumping oil-contaminated waste into the sea, and then covering it up. The company was fined $20 million this year while on probation for discharging plastic into waters around the Bahamas and falsifying records.
In an email, Roger Frizzell, a spokesman for Carnival Corporation, wrote that actions were taken to address the issues that led to the recent fines, including additional oversight, training and equipment to prevent oil spillage, which he said has not happened again on any ship in the fleet. Mr. Frizzell added that the company has undertaken a significant push to “dramatically reduce” and remove single-use plastics on board all of its ships since the 2016 fine.
Ms. Golin-Blaugrund, of the Cruise Line Industry Association, said the cruise industry is committed to responsible tourism, and its environmental policies and practices often exceed those required by law.
Accusations of a botched coronavirus response
First there was the Diamond Princess.
The world watched as the ship sat quarantined off the coast of Japan and the coronavirus ripped through the cabin — infecting so many passengers that at the time it became the largest concentration of coronavirus cases outside China. The response from the cruise line was widely seen as rife with mistakes.
What followed was a series of actions by the industry that drew criticism, just as members of Congress were drafting the bill. As more ships were hobbled by the coronavirus, the cruise industry was slow to respond and to put in place precautions that would protect passengers — at times seeming to have an ad hoc approach to coronavirus responses on board ships.
It was a public-relations nightmare, and eventually the State Department stepped in and warned Americans, especially those with underlying health issues, not to board cruise ships. After the warning, the major cruise lines suspended U.S. operations for 30 days.
The optics for the industry are not great at the moment, said James Hardiman, the managing director of leisure equity research for Wedbush Securities, who follows the industry.
“I think if the U.S. public turns on the television and they see a bunch of people getting back on a cruise ship anytime soon, I think the public reaction to that is going to be very much akin to the public reaction when you saw a bunch of spring breakers getting drunk and ignoring the new reality,” he said.
The perception that going on a cruise is synonymous with bad or irresponsible behavior, he said, “is going to be a real problem for the industry.”