Corporate bailouts are never popular with the average voter. But bailing out the cruise industry — which goes out of its way to avoid paying U.S. federal taxes — is proving a particularly hard case to make as the travel industry appeals to Congress for help.
As Congress battles over a $1.3 trillion financial rescue package for the American economy and travel industry, the inclusion of the cruise industry in such a deal remains a sticking point.
While the industry has received no shortage of negative attention for its handling of the crisis, President Trump, a longtime friend of the industry, has said several times the industry deserves financial assistance. But interestingly, major opposition to the idea of a cruise bailout is not centered on the industry’s handling of the coronavirus crisis, but rather around criticisms that have dogged the industry for years. Democratic and Republican lawmakers are reportedly uneasy about bailing out a non-essential industry that places much of its operations outside of the U.S.
Last week, U.S. Senators Richard Blumenthal, Edward Markey, Sheldon Whitehouse and five other Democratic senators published a letter saying that airline and cruise industries should only receive financial aid if they are forced to clean up their environmental practices as a condition of receiving assistance. Over the weekend, a coalition of environmental groups also sent a letter to Senate and House leaders opposing any bailout for the cruise industry.
“Providing U.S. taxpayer dollars to massive foreign cruise ship corporations that pollute our environment, take advantage of tax loopholes, and flag ships in foreign countries would allow the cruise industry to return to business as usual, which is unacceptable,” the letter, signed by representatives from Greenpeace, Stand.earth, and Friends of the Earth, read. “This polluting and destructive foreign industry does not deserve a bailout from American taxpayers, especially not in the middle of a national health emergency.” Their letter further outlined that in the event government assistance is given, it should come with “explicit, nonnegotiable environmental and tax liability conditions.”
A vote on the stimulus bill stalled in the Senate on Sunday, but there are hopes it might still pass early this week. Over the weekend, Kendra Ulrich, senior shipping campaigner for Stand.earth, told Skift she was in conversation with Democratic congressional staffers on what stipulations should — and shouldn’t — be included in the bill as it relates to the cruise industry. She understood from her conversations that some of the concerns span across the partisan aisle.
“The general sense is that the cruise industry is not a driver of the US economy. It’s not something like a bank,” Ulrich said. “If the banks go under, there’s a financial crisis. This is something that’s a luxury industry. That will survive, or will not survive. I think it will — and hopefully with massive reforms on the other side in terms of their practices. But there isn’t this sense of urgency from lawmakers.”
Beyond the non-essential nature of the industry to the U.S. economy, environmental and tax issues are the major issues being questioned by critics. As Senators Blumenthal and Markey’s letter pointed out, “the foreign-flagged cruise industry has a checkered environmental record and most passenger liners burn heavy fuel oil, one of the dirtiest fuels.” The letter called for any financial assistance being contingent on the industry lowering its air pollution and carbon emissions.
The industry’s lobbying group Cruise Lines International Association points out it is the first maritime sector to commit to cutting carbon emissions by 40 percent by 2030 compared to 2008 levels. It also says it’s invested more than $22 billion in cleaner tech and fuels including exhaust glass cleaning systems and LNG fuel. (Though not everyone is convinced by the green credentials of those efforts.)
The second issue is the industry’s tax exempt status. A loophole for shipping companies in the Internal Revenue Code means the three largest cruise lines pay comparatively little income tax. Thus, any effort to give them fiscal stimulus in the form of a tax break may not be effective as they pay so little tax to begin with. Senator Whitehouse tweeted last week there was no reason for the American taxpayers to bail out these companies that are incorporated and flag their vessels elsewhere.
CLIA told Skift that its members paid $1.3 billion in taxes and fees to the U.S. in 2018,
including $170 million in federal taxes. But thanks to their status as foreign corporations, the major lines’ income tax rate pales in comparison to other travel industry giants. For example, as Skift’s Research Analyst Seth Borko pointed out, “Carnival earned $3.06 billion in 2019 before taxes and paid $71 million, a 2.3 percent rate. Meanwhile Marriott earned $1.6 billion in pre-tax income and paid $326 million a 20.4 percent rate.”
When it comes to the terms of a bailout, it’s not entirely clear what the cruise industry is asking for. The Wall Street Journal reported that as much as $75 billion would go to distressed companies, including those in the travel industry — and cruise lines have been frequently mentioned as one of the sectors expected to be included in such measures. Ulrich also said the conversations she’d had with staffers on the Hill were “extremely detailed on what the parameters would be” — indicating the cruise industry may already be included in draft legislation.
And yet, CLIA emphatically said it is not asking for a bailout — which also seems to put it at odds with the president, who can’t stop talking about giving them help in his press conferences. Instead, CLIA told Skift its current lobbying efforts are two-fold. The first thing is getting “member cruise line ships safely back to port given the voluntary worldwide suspension of cruising by CLIA member cruise lines.”
The second thing is lobbying on behalf of the “extended cruise community,” which includes travel agents, tour operators, and suppliers in all 50 states of the U.S. When asked for further information about what specific provisions CLIA was lobbying for that would help that community, a spokesperson had no proposals to share. CLIA estimates that the cruise industry supports 421,000 jobs in the U.S.
Meanwhile, Carnival Corp. CEO Arnold Donald told Axios on HBO that the industry was not looking for a bailout per se, but support for its 150,000 employees. “We’re looking for support primarily for those people who are being touched. We don’t need a bailout in terms of giving us money. Getting a loan guarantee would be helpful,” he said.
CLIA did not say whether or not it was seeking loan guarantees for its members when asked about Donald’s statements.
As Skift previously reported, the coronavirus crisis has shone a light on the unusual operations of the cruise industry in a way no other event or crisis prior has managed to. Ulrich said as a someone who’s long campaigned for cruise industry reform — and seen many previous attempts by lawmakers to further regulate it fail — “it is a very encouraging sign that the members of Congress are playing close attention and re-looking at the practices of the cruise sector.”
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Photo Credit: The Carnival Glory Sea-turtle / Flickr