What happened
Cruise-tourism stocks tumbled in Thursday-afternoon trading, as Norwegian Cruise Line Holdings (NYSE:NCLH) slid 3.8%, Carnival Corporation (NYSE:CCL) sank 4.4%, and Royal Caribbean (NYSE:RCL) brought up the rear with a 4.8% decline. If you own any of these three cruise stocks, you can thank Carnival for your losses today.
So what
This morning, Carnival filed its 10-K annual report with the SEC and described the “recent developments” affecting its business — and perhaps that of other cruise lines, as well. As of two weeks ago, reports Carnival, 67% of the company’s “capacity” across eight of its nine cruise brands had resumed cruising, and Carnival expects “to have our full fleet back in operation for our summer season where we historically generate the largest share of our operating income.”
Image source: Getty Images.
That’s the good news. Now here’s the bad (from the 10-K):
Since the beginning of our fiscal year, [and Carnival’s presumably speaking of fiscal 2022 here, so pay attention if you want to know how this current year is going], we have experienced an impact on bookings for our near-term sailings, including higher cancellations resulting from an increase in pre-travel positive test results and challenges in the availability of timely pre-travel tests. In addition, in the last few weeks we have seen a dampening of the booking activity for the second half of 2022 relative to 2019.
In other words, customers are canceling trips in the first half of the year, and also “dampening” reservations for the second half.
Now what
First and second half? That sounds like Carnival is predicting a weak year all through 2022, which is obviously not what investors were hoping to hear today. While management tried to put a brave face on things, reassuring investors that “we expect to be able to successfully operate over 96% of our previously disclosed available lower berth days … in the first quarter of 2022,” being “able” to sell those reservations doesn’t necessarily mean Carnival will be able to find customers to buy them.
As of this writing, neither Royal Caribbean nor Norwegian Cruise Line Holdings have published warnings similar to the one Carnival Corporation just put out. That being said, it stands to reason that if vacationers are leery of cruising with Carnival, which like the other lines says it has “put in place comprehensive health and safety protocols for protection against and mitigation of COVID-19 across the entire cruise experience for all of our nine brands,” then they’re probably going to be nervous about cruising with Norwegian and Royal Caribbean, as well.
If that’s the case, then analyst predictions that Carnival will return to profitability in Q3 2022 and Royal Caribbean and Norwegian will turn profitable again in Q2 just got thrown into question. No wonder investors are upset.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
