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Royal Caribbean asks Galveston for extra time to complete new cruise terminal in case ships cannot sail

In:
27 Apr 2021
By: 
Matt Hochberg

Royal Caribbean has a deal to build a new cruise terminal in Galveston, Texas, but the longer the cruise industry shutdown goes, the longer it could take for Royal Caribbean to finish it.

The longer the delay in cruise ships resuming sailing from the United States could impact the new terminal. Royal Caribbean was set to open it by fall 2022, but now, it could be off by a year.

The Port of Galveston Board of Trustees has agreed to the contract amendment by approving a second amendment to the contract on Tuesday for the new Royal Caribbean cruise terminal.  

Although the due diligence period expired on April 9th, this second amendment formally waives the due diligence period and makes this a firm contract.  The due diligence period had given Royal Caribbean Group the ability to cancel the contract up to the April 9th date, but that leverage is now gone.

The contract maintains a target completion date of September 1, 2022 to complete the terminal, which is well ahead of the planned arrival of Allure of the Seas on November 13, 2022.  Allure of the Seas will be arriving from Barcelona, Spain.

To allow for the uncertainty around the resumption of cruising and potential difficulties getting financing for the project, the latest date when Royal Caribbean must complete the project and begin paying rent was extended three months to 9/30/2023.  

Royal Caribbean had asked for a 6-month extension but negotiations resulted in only a 3-month extension. The cruise line is obligated to begin paying rent when the first ship docks at the new terminal, but not later than September 30, 2023.  

Quoted in the Galveston Daily News, Port Director Rodger Rees said that ideally the extension won’t come into play at all. "I think the opening date of the terminal will depend on when the cruise lines commence cruising in the U.S.," Rees said.

"Construction will need to begin by July or August to have the terminal completed by November of 2022. If cruising commences much later than July or August, it will be tough to expect to have the cruise terminal finished by November of 2022."

Trustee Elizabeth Beeton was also quoted in the Daily News and pointed out that at this point there would be significant financial consequences if Royal Caribbean backs out. "If Royal fails to perform, they owe the port several million dollars," Beeton said. She said Royal Caribbean’s extension request wasn’t particularly significant.

In summary, the contract is now firm, Royal Caribbean intends to be ready for Allure’s arrival on November 13, 2022, but they have the contractual flexibility to delay completion to as late as September 30, 2023 if the U.S. Centers for Disease Control and Prevention (CDC) continues to block cruising in the United States and there are other roadblocks to financing the project.

The Port of Galveston has been working on their portion of the project throughout the Covid pandemic and remains on track to support the project with utilities, parking lots, road and traffic improvements, landscaping, dredging, and other work.

The Port of Galveston and the Royal Caribbean project team began bi-weekly project meetings several months ago.

The global health crisis caused the new port project to be delayed. Royal Caribbean announced a new cruise terminal deal in December 2019, with an anticipated completion date of November 2021.

In March 2020, Royal Caribbean asked Galveston to delay the start of construction by a year.

Allure of the Seas is scheduled to begin sailing from Galveston, Texas in November 2022.

Special thanks to Steve Ritter for his contributions to this article.