Why Carnival, Royal Caribbean, and Norwegian Cruise Stocks Popped

What happened

As trading for Tuesday, August 16 draws to a close, cruise ship stocks are pulling back higher. As of 3:35 p.m. ET, Norwegian Cruise Line holdings (NCLH 2.83%) The stock is up 3.2%, followed by royal caribbean (RCL 3.99%), which is up 3.7%. At the head of the entire pack is the industry leader carnival (CKL 4.48%)increased by 4.6%.

And indeed, Carnival turns out to be the source of today’s good news — as Carnival has announced it will be sailing in Norwegian Cruise Line’s wake and changing its COVID-19 policies to attract more customers.

so what

Last week, Norwegian announced that it was revising its SailSAFE health and safety protocols to “further align the company with the broader travel, leisure and hospitality industries worldwide.” From now on, guests under the age of 12 can board Norwegian ships without showing either vaccination or negative COVID-19 test results. Guests over the age of 12 who have been vaccinated do not need to present a negative COVID-19 test to board – and unvaccinated guests will can board if they present a negative test. (However, disembarkation may be a different matter as local regulations may differ in Norwegian ports of call.)

Echoing its competitors, Carnival announced on Friday that it has a similar policy, with the main difference being that Carnival sets the age limit at 5 — meaning children under 5 don’t have to show proof of vaccination or negative test results — and exemptions vaccination and testing requirements apply only to passengers sailing on cruises of 15 days or less. Otherwise, Carnival is basically on board with Norwegian’s program. (Which means Royal Caribbean’s analogue announcement is likely just over the horizon.)

And now for the best news for cruise stock investors, Carnival announced today that booking activity on the very first day of trading after COVID-19 restrictions were lifted was “almost double the equivalent day in 2019.”

What now

Is This A Favorable Sign For Carnival’s Return To Profitability? Three days after Carnival eased cruises, are Carnival bookings suddenly skyrocketing? Maybe.

Carnival appears to be taking this surge in bookings as further evidence that its bookings will be “very solid” through the end of this year, after a summer that’s already showing signs of “heavy occupancy” aboard Carnival’s cruise lines. And management believes the easing of COVID-19 protocols will now encourage vacationers to buy their remaining inventory for 2022 and that momentum will continue into 2023. As Carnival commented, “Purged demand for Carnival has not been met and guests are responding very favorably to our updated protocols.”

It all sounds logical, but it leaves the question of whether bookings will rise fast enough, and whether cruise fares will rise enough, to overcome the enormous debt burden Carnival (and also Royal Caribbean and Norwegian) have taken on during the pandemic , so each of these three companies can pay the interest on its debt and soon become profitable again.

For what it’s worth, analysts polled by S&P Global Market Intelligence see an outside chance of Royal Caribbean turning a profit as early as next quarter — but then losing money again in the fourth quarter. Norwegian and Carnival investors, on the other hand, will likely have to wait until at least the second quarter of 2023 to see their companies return to profitability.

No matter how optimistic you are about cruise stocks, it’s hard to imagine that booking numbers will one day change that bleak outlook.

Editor’s Note: This article has been corrected. That The World Health Organization declared COVID-19 a pandemic in March 2020. Carnival’s reported 2019 numbers were before the pandemic.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Mardi Gras. The Motley Fool has a disclosure policy.

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