What happened
Cruise companies’ shares rose on Friday after some positive comments made by a major member of the industry. Actions of Carnival (NYSE: CCL) (NYSE: CUK) increased 7.7% before and 6% at 1pm EST. Norwegian Cruise Line (NYSE: NCLH) rose 6.8% and is now trading 5.4% above. AND Royal Caribbean Cruises (NYSE: RCL) traded 6.1% higher and is now 4.1% higher.
This follows a strong week for cruise companies’ actions on optimism about the effectiveness of COVID-19 vaccines and at Carnival closing a $ 3.5 billion financing round.
Image source: Getty Images.
And
The most notable news today came from Carnival CEO Arnold Donald, who said he believed “most, if not all” of his fleet will be in operation by the end of 2021. At worst, he believes the beginning of 2022 you will see the entire active fleet.
A major uncertainty for cruise lines is when they will be able to return to action. The longer the pandemic keeps people away from cruises, the more companies need to keep their businesses afloat and the more uncertain as to when there will be a return for shareholders. If Donald is seeing a rapid recovery in late 2021, this is extremely optimistic for the sector.
It is unclear exactly what a recovery will look like for cruise lines. Vaccines are expected to be widely available in the United States by summer, and some companies are considering vaccine approvals that would allow for a more open movement than current restrictions. This may also be possible on cruise lines, where passenger safety will not only be a priority for operators, but also a key to getting customers on board.
What now
There is still a lot of uncertainty for cruise operators, but it is becoming increasingly clear that better days are ahead. In summer, more capacity may be reaching the waters and, if Carnival is right, the industry may be in full swing in winter.
What will be important to note for investors is how quickly demand returns. There are rumors that pent-up demand could lead to a 1920s-style recovery for discretionary consumer stocks, which would be great for entertainment and vacation companies like cruise lines. Utilization and prices can be high if the pandemic ends soon.
As much as the market is clarifying these comments today, we were hoping for a recovery earlier, so caution is needed. Demand can be weak if customers do not want to risk boarding a cruise ship, and operators may have to set aggressive prices to attract customers. And with billions of additional pandemic-related debt on their balance sheets, all three companies are more at risk than they were a year ago. For now, the market likes that there is some kind of light at the end of the tunnel.