What happened
Friday was a difficult day for cruise industry investors, and the first day after the holiday – Tuesday – doesn’t seem much kinder, at least not in the financial news. On Friday, investment bank Berenberg downgraded the shares of cruise lines in the sector, cutting both Carnival (NYSE: CCL) (NYSE: CUK) and Royal Caribbean (NYSE: RCL) waiting for sale and demotion Norwegian Cruise Line Holdings (NYSE: NCLH) of the waiting purchase.
Today, the news got even worse, with the latest company – Norwegian Cruise Line – announcing that it will extend its own global shipping suspension until the end of May 2021. And yet … Carnival Corporation’s shares rose 6.6%, as of 11:11 am EST, while rivals Royal Caribbean and Norwegian Cruise Line were gaining 6% and 5.2%, respectively.
What is this about?
Image source: Getty Images.
And
According to Berenberg analysts (via reports on TheFly.com), Wall Street “has no idea” when the cruise will resume on any of the major cruise lines, at least not with enough passengers on board to have any appreciable effect on revenue. In turn, Berenberg sees nothing like a return to normal happening before 2024 or even 2025.
Meanwhile, debt levels are “inflating” across the industry and, assuming that banks want to receive interest on that debt, the entire cruise industry business model looks increasingly “unsustainable”.
So, just to clarify, Norwegian confirmed that previous hopes of a return to cruises this summer are looking increasingly unrealistic.
What now
And yet, cruise will resume sometime – and probably sooner than Berenberg predicts.
A greater number of vaccinations will help to advance that date. Last month, if you remember, the tiny cruise operator Saga in the United Kingdom announced that it would require proof of vaccination against the coronavirus for anyone wishing to board their cruise ships. American Queen Steamboat Company and Victory Cruise Lines in the United States followed suit this month.
The largest Norwegian operator had previously said it was considering a similar action, and on Friday – after negotiations closed last week, but before it could resume this week – Royal Caribbean has confirmed that it will require all of its crew to be vaccinated as soon as the cruise resumes.
“Several vaccines have been shown to be effective in preventing mild and severe symptoms of COVID-19,” advised Royal Caribbean in a letter to its employees, “and we intend to make them a key component of our healthy return to service.”
With healthcare professionals already administering 52 million vaccines in the United States in the past two months, and the vaccination rate accelerating each day, a “return to normal” in 2024 or 2025 seems overly pessimistic to me. We may not see the cruise resumed in time for the summer, right. But I see a return to the cruise before 2022 as more likely.