Why you should ask for a refund, not a credit, for your canceled cruise

© Royal Caribbean

By Gene Sloan, The Points Guy

Do you have a cruise booking that just got canceled due to the coronavirus outbreak?

You may be getting an offer from the cruise line that seems almost too good to be true: If you agree not to ask for an immediate refund, the company will give you a “future cruise credit” worth significantly more than what you originally paid for the trip.

In making such offers, cruise lines are hoping to preserve cash on their balance sheets — something that’s critical to them right now as revenues plummets. And they’re making the offers enticing.

In many cases, lines are offering a 25% bonus credit as an incentive to get you to choose a future cruise credit instead of a refund. Some lines are offering even more.

Holland America, for instance, is giving passengers on canceled sailings a future cruise credit in the amount of 125% of the fare they paid for the canceled trip plus an onboard spending credit in the amount of $250 per person. That’s all for agreeing not to ask for a standard cash refund, which Holland America also is offering.

In practical terms, what that means is that a couple who paid $4,000 for a canceled Holland America cruise can get a credit of $5,000 to apply to a future sailing plus $500 in onboard spending credits that can be used for extra-charge restaurants, spa treatments and other pricey add-ons.

That’s $1,500 in extra value — a 37.5% return on their original payment of $4,000 — just for letting the cruise company hold their cash for, at most, 20 months. At Holland America, the credits must be used by Dec. 31, 2021.

It sounds great, doesn’t it? Who wouldn’t want the chance to pick up free money? But here’s our advice: Skip the future cruise credits. Take the cash.

You’ll want maximum flexibility to snag deals

It’s still unclear how and when travel around the globe will restart. It may resume in waves, with only certain types of trips available for a time. Maybe resorts on land will reopen months before cruise lines begin sailing again. Maybe the opposite will happen. Maybe flights will resume to Asia before Europe, or vice versa. Maybe we’ll only be able to do road trips to close-to-home destinations for months on end.

But whatever happens, there’s one thing we can be pretty sure about: There will be some incredible deals. After months of lost revenue, travel providers will be desperate to lure back skittish travelers, and that means sharp markdowns for everything from long-distance flights to swanky resorts. We’ve already seen hints of this in recent days with airlines offering fall flights to the Caribbean for as little as $56 and Alaska Airlines selling some domestic routes for $20 a seat.

When the deals arrive, you’re going to want maximum flexibility in your travel planning. That means access to cash, not credits. You’ll want to be able to pounce at the very best offers.

Maximum flexibility in this sort of situation is critical, as there’s no way of knowing now what sort of trips will be available when travel begins to resume and at what price.

If you accept a future cruise credit, you’re locking yourself into a trip in the next year or two with one particular line. If you take the cash, you’ll have access to a world of opportunity.

Itineraries may not be the same when cruising resumes

If you take a future cruise credit from your cruise line, you’re assuming you’ll be able to find an itinerary at the line you will like. But that might not be the case.

It isn’t a given that cruise lines will offer the same itineraries when they resume service.

While major cruise operators such as Royal Caribbean and Carnival Cruise Line aren’t tipping their hands yet on their comeback plans, we’re expecting to see a distinct shift to shorter, closer-to-home sailings — at least initially. Cruise lines that market to North Americans may base more of their vessels in U.S. ports such as Miami and New York for relatively short sailings to the Bahamas, Caribbean, Bermuda, New England and Canada.

They may keep fewer of their ships in Asia, Europe and South America — or refocus vessels in those regions to local markets.

Among North Americans, long sailings to far-off destinations such as Asia and South America typically appeal to an older, mostly retired crowd who have the time and money for such trips. But this is the segment of the population most at risk for contracting the new coronavirus. Until a vaccine for the illness is available (something experts say could be more than a year away), or cases drop to extremely low numbers, the demand for such sailings will likely be much reduced. That, in turn, could cause cruise lines to shift their ship deployments in some significant ways.

Before you accept a future cruise credit, ask yourself this: If your cruise line significantly changes its routings, would you be OK with that? Would you be willing to be flexible on where you sailed with the line? If not, a cash refund may be the better bet.

We don’t yet know the new rules for cruising

On April 4, the U.S. Centers for Disease Control and Prevention (CDC) said cruise passengers no longer could fly on commercial aircraft when returning home from cruise ships. For now, cruisers only can travel home via chartered aircraft arranged by cruise lines, or by other private transportation such as private car.

We suspect this is a short-term measure designed to manage the return of cruisers who have been stuck at sea in recent weeks. But the CDC issued no timetable for when the rule would be lifted. If it’s still in place when cruise lines resume regular sailings, it could have profound implications for cruising. It effectively would limit access to cruises to those who could drive to ports.

In addition, when cruising resumes, some cruise ships could be off limits for a time to older travelers and those with preexisting medical conditions — those most susceptible to COVID-19.

Before they stopped sailing in March, several cruise lines including Royal Caribbean and Celebrity Cruises announced new rules banning travelers ages 70 and up from ships unless they had letters from their doctors saying they were fit to travel. The lines also said they would not allow anyone with a chronic illness of any age on ships.

As cruising resumes, there may be more such rules that affect would-be cruisers. A credit for a future cruise will be no good to you if you suddenly find yourself unable to board a ship.

Some cruise lines may not survive

This is a tough topic to discuss. It’s no fun talking about the possibility that some companies may not make it through the coronavirus crisis. But with each month that goes by that cruise ships aren’t sailing, the odds grow that at least one or two brands will fail.

We’ve seen this before. In the wake of the terrorist attacks of Sept. 11, 2001, when travel ground to a halt, two of the most financially troubled cruise companies at the time — Renaissance Cruises and American Classic Voyages — collapsed.

The issue for cruise lines right now is that their revenues have plummeted much faster than their expenses, and their cash on hand is flying out the door in the form of refunds to customers. In a regulatory filing last week, cruise giant Carnival Corp. said it was burning through $1 billion a month. That’s simply not sustainable long term.

The good news is that all of the biggest players in the cruise industry have enough cash to weather a shutdown that lasts many months, according to Wall Street analysts.

In a research report sent to investors Tuesday, leisure industry analyst Harry Curtis of Instinet suggested the three giant cruise companies that dominate cruising — Carnival Corp., Royal Caribbean Cruises and Norwegian Cruise Line Holdings — had enough liquidity and borrowing capacity to survive a period of near-zero revenues into the first quarter of 2021.

Carnival Corp. is the parent company of Carnival Cruise Line, Princess Cruises, Holland America, Seabourn and five overseas brands. Royal Caribbean Cruises operates Royal Caribbean, Celebrity Cruises and Azamara. Norwegian Cruise Line Holdings is the parent company of Norwegian Cruise Line as well as Regent Seven Seas Cruises and Oceania Cruises.

“Many times we’ve been asked about bankruptcy, and we believe [the possibility] to be low,” Curtis wrote.

Still, in an environment such as the current one, with the length of the travel shutdown still unknown, you may want to think twice before allowing your money to be tied up unnecessarily with a travel company.

Bottom line

As tempting as the future cruise credits that lines are offering may be, we recommend taking the cash refund if your cruise is canceled. In trying times like these, there’s nothing like having cash in the bank.

Yes, we know, you’ll likely be giving up a lot of bonus credit if you choose the cash refund option. There is that downside. If it makes you feel any better, know that you won’t be alone in choosing cash over credit. In its regulatory filing, Carnival Corp. said only about 45% of its customers were taking the future cruise credit option.

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