Cruise Lines Budget for Extra Costs as They Prepare to Restart Sailings

Cruise lines expect to book a mix of one-time and recurring expenses for enhanced sanitation, Covid-19 testing and other measures as they are vying to win back the public’s trust. Coronavirus outbreaks aboard ships last year brought sailings to a halt, resulting in cruise companies having to raise billions of dollars in emergency funds to stay afloat.

Miami-based

Carnival Corp.

, which operates nine brands, forecasts additional spending in the hundreds of millions of dollars, Chief Financial Officer

David Bernstein

said. The company sees costs needed to restart its ships as one-time expenses, while health protocol-related costs—a separate class of outlays—will depend on the duration for which they are needed, Mr. Bernstein added.

“[I] wouldn’t call hundreds of millions immaterial, but I would call them manageable within our liquidity status,” Mr. Bernstein said. Carnival had $11.5 billion in cash and short-term investments at the end of the quarter ended Feb. 28 and doesn’t need to raise additional funds to cover the additional costs, Mr. Bernstein said.

The company on Thursday said three of its lines plan to resume Alaska sailings in July after Congress passed a bill that would let cruise ships sail directly from Washington state to Alaska, temporarily waiving a part of maritime law prohibiting foreign-flagged vessels from transporting passengers between two U.S. ports. Foreign-flagged vessels, such as cruise ships, had been required to stop at a foreign port—Canada, in this case—under U.S. law. Canada currently bans large cruise ships from sailing on its waters until the end of February 2022.

Norwegian Cruise Line Holdings Ltd.

has said it plans to spend about $100 million on health and safety. Its flagship line has pledged to cover necessary Covid-related treatments, land-based quarantine and flights home in the event a passenger tests positive while on board—a promise that would have been unthinkable before the pandemic, analysts said.

“They’re not on their own. We’re not just dropping them off on the side of the road,” said

Harry Sommer,

chief executive of Norwegian’s flagship line, referring to passengers who might test positive for Covid-19.

These contingency measures are necessary to regain customers’ confidence, even though they will weigh down margins, said

Ted Sykes,

the former CFO of Viking Cruises who now advises other operators.

Norwegian expects to burn through an average of $190 million in cash a month during the second quarter, CFO

Mark Kempa

said. “Restart expenses are primarily related to repositioning, provisioning and staffing of vessels, implementing new health and safety protocols and a measured ramp-up of…marketing investments,” Mr. Kempa said earlier this month.

However, some of that spending could be in vain if the cruise industry doesn’t come to an agreement with port authorities and regulators soon, given the lead time of about 90 days that is needed to get a ship ready for sailing. Norwegian, for example, began preparing for a potential return to service in early 2021, though sailings didn’t happen as key ports around the world remained closed. The company spent about $45 million in relaunch-related costs during the last three months of 2020, Norwegian said in February.

There have already been signs of tension in the companies’ dealings with local authorities. Norwegian said it would require all passengers and crew members to be fully vaccinated before boarding a ship. The state of Florida, a major cruise hub, has barred businesses from requiring patrons to provide documentation certifying Covid-19 vaccination. Norwegian Chief Executive

Frank Del Rio

has said the company can simply move the ships if needed and operate elsewhere.

“There is still a lot of work to do in order to achieve the goal of sailing from U.S. ports this summer,” a spokeswoman for trade group Cruise Lines International Association said.

Cruise operators have pointed to strong demand for next year’s sailings, which could help them offset some of the extra costs. Carnival in April said bookings for future cruises during its fiscal first quarter were about 90% ahead of those in the fourth quarter of 2020. Competitor

Royal Caribbean

Group said overall prices for bookings for the second half of 2021 are higher than they were in 2019.

Norwegian during the second quarter raised prices for its voyages, Mr. Del Rio said. “I’m just amazed at how much pricing power we actually have, given the difficulties that we all know about,” Mr. Del Rio said on a conference call earlier this month.

Cruise lines aren’t likely to offer substantial discounts to passengers because of the expected surge in demand going forward, said

Steven Wieczynski,

an analyst at Stifel Financial Corp., the financial services firm. Some initial sailings might offer incentives to encourage people to book a trip, he said.

Next year, higher prices, coupled with more bookings, will compensate for the increase in operating costs, Mr. Sykes said. “When load factors come back, profitability comes back in spades,” he said, referring to an industry metric for passenger occupancy.

Cruise operators are also looking for additional savings. Carnival, for example, is reducing the toll-free numbers it offers to customers to cut costs, an effort that began before the pandemic.

Royal Caribbean plans to emerge as a leaner company from the pandemic, CFO Jason Liberty said in late April, pointing to a simpler supply chain to save costs through bulk purchases. For instance, it is reducing the number of banana varieties from 19 to 11, he said.

“As we come out of this, there’s going to be some one-time costs in terms of ramping up our business,” Mr. Liberty said. “But we’ve spent the past 13 months evaluating our cost structure and really reshaping it so that as we come out of it, we’re leaner.”

Write to Dave Sebastian at dave.sebastian@wsj.com