Cruise Ships, Airlines, and Flags of Convenience

It’s been a rough few years of sailing for the ocean cruise industry, hasn’t it? From time to time, hundreds of passengers have become violently ill, basic sanitation services have ceased to function, passengers have fallen overboard, and a vessel has capsized while its captain fled in a life boat, leaving guests and crew members behind to fend for themselves.

Why do such ghastly events continue to plague the industry? Some attribute this track record of catastrophe to the common business practice of registering ships in small nations and flying their “flags of convenience.” There’s a reason why Panama, Liberia, Malta, and the Marshall Islands lead the world in ships registered; some suggest that their business friendly regulatory policies attract shipping companies to their shores but then contribute to the lax internal controls that enable crisis after crisis.

If you’re relieved that this practice of “flags of convenience” has been restricted to the cruise ship industry, you might be concerned to learn that the airline industry is now considering its implementation as well. The budget airline Norwegian Air Shuttle (NAS) has applied to register its Operator’s Certificate in Ireland even though it intends to maintain European bases in Scandinavia and Britain.

The Air Line Pilots Association is vigorously opposing NAS’s plan, calling it an “attempt to dodge laws and regulations …” According to the ALPA, “If NAS is permitted to pick and choose the countries in which it establishes its subsidiaries … U.S. carriers will be put at a severe competitive disadvantage because the United States has one set of laws and regulations for all of its airlines …”

Of course, the practice of business registrations in small, industry friendly locales is not confined to the transportation industry. In the financial services industry, regulatory tax havens have sprouted in nations like Andorra, Cyprus, Monaco, Panama, and Switzerland. And even within the United States, tiny Delaware dominates the other 49 states in public corporation registrations.

Interestingly, however, the Norwegian Cruise Line is currently operating a single vessel with a United States registration and an American crew. The ship, known as the Pride of America, is attempting to offset the significant costs of U.S. regulations by attracting the interest of patriotic American passengers.

The Pride of America is the only large cruise ship in the world that flies an American flag. If you were the President of Norwegian Cruise Lines, would you consider registering additional cruise ships in the United States?