Shareholders Sue Over Cruise Sales Tactics as Demand Slowed

MIAMI (CN) — Up in arms over media reports that Norwegian Cruise Line desperately tried to dupe customers into booking cruises amid the coronavirus outbreak, shareholders filed a federal class action against the company.

The lawsuit filed late Thursday in Miami claims that Norwegian Cruise Line made bogus reassurances to shareholders that it is poised to weather the economic impact of the novel coronavirus known as COVID-19. According to the complaint, the company also falsely stated in public filings that it was prioritizing passenger and crew safety in light of COVID-19 outbreaks on other cruise lines.

Tents stand on a wharf near the Grand Princess at the port in Oakland, Calif., on Monday. (AP Photo/Noah Berger)

Shareholder Eric Douglas, the lead plaintiff in the proposed class action, points to the company’s Feb. 27 annual filing, in which Norwegian stated: “We place the utmost importance on the safety of our guests and crew. We operate all of our vessels to meet and exceed the requirements of … the international safety standards which govern the cruise industry.”

The company touted being “at the top range” of scores on vessel-sanitation inspections by U.S. regulators prior to the COVID-19 outbreak.

The reported worldwide death toll from the novel coronavirus strain stood at approximately 5,000 Friday morning, with more than 125,000 cases reported worldwide, according to the World Health Organization, which declared the outbreak a pandemic on Wednesday.

Fear of the virus, coupled with government-imposed travel restrictions, has sent airline and cruise stock prices tumbling. Norwegian Cruise Line’s stock price has plunged more than 75% since mid-February.

Princess Cruise Lines, which is owned by Carnival, on Thursday suspended operations for two months in the wake of outbreaks on its ships. Its Diamond Princess ship, on which more than 700 passengers tested positive for the virus, was put in quarantine in a Japanese port for weeks on end in February.

Meanwhile, the U.S. Centers for Disease Control and Prevention is advising elderly travelers and people with underlying health issues to avoid cruises on account of COVID-19.

The Miami lawsuit claims Norwegian concealed from shareholders that it was resorting to last-gasp, deceptive sales tactics to get bookings. With sales plummeting, some agents were pressured by management to spread false information to ease customers’ concerns about the virus, the complaint claims.

“The company was employing sales tactics of providing customers with unproven and/or blatantly false statements about COVID-19 to entice customers to purchase cruises, thus endangering the lives of both their customers and crew members,” the complaint claims.

The lawsuit focuses on a Wednesday report from the Miami New Times that Norwegian Cruise management gave salespeople scripts with alarmingly misleading information.

According to the report, one sales script included the false assertion that coronavirus cannot spread in warm climates.

“Coronavirus can only survive in cold temperatures, so the Caribbean is a fantastic choice for your next cruise,” the script allegedly reads.

Another suggested sales pitch allegedly tried to dupe customers into thinking Norwegian was experiencing high demand for bookings: “Due to the coronavirus we have cancelled all of our Asia cruises on the Norwegian Spirit. This has caused a huge surge in demand for all of our other itineraries. I suggest we secure your reservation today to avoid you paying more tomorrow.”

The employee who purportedly leaked the internal communications told New Times that “sales are at serious lows,” and that Norwegian Cruise agents are struggling to secure bookings.

Coinciding with a historic single-day crash in the U.S. stock markets, Norwegian’s stock price dropped more than 35% on Thursday. The stock had partly rebounded Friday afternoon, with the share price closing at $11.10.

The shareholder lawsuit seeks class certification on two counts alleging violations of the Exchange Act. Norwegian Cruise Line, its chief executive Frank del Rio and its chief financial officer Mark Kempa are listed as defendants. The proposed class is represented by New York City attorney Laurence Rosen.

The cruise line did not respond Friday to a request for comment.

According to the CDC, there have been more than 40 deaths in the U.S. attributable to COVID-19 as of Friday morning. The virus attacks the respiratory system, causing shortness of breath and coughing.

Epidemiological studies, including a large-scale study published by China’s disease control agency, indicate that the virus may be significantly more deadly than the flu, though its exact mortality rate has not been pinned down due to uncertainty in the number of undiagnosed cases.

The Chinese study stated that out of the more than 44,000 cases surveyed, over 80% were mild infections. In the elderly, the virus had an alarming impact, killing roughly one in 28 people between the ages of 60 and 69 in the case population surveyed.

President Donald Trump this week temporarily barred non-U.S. residents from traveling to United States if they’ve recently been to Europe, excluding five countries outside the Schengen Area, a borderless, open-travel zone. Similar restrictions were put in place last month on travelers from China, where the first large-scale documented outbreak of COVID-19 occurred.

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