Can investors trust the actions of cruise lines in 2022?
This was finally the year that cruise lines started sailing again in droves, but the journey was longer Gilligan Island than Love boat. The three cruise stocks that have held up surprisingly well in 2020 – Carnival (NYSE: CCL), Royal Caribbean (NYSE: RCL), and Norwegian Cruise Line Holdings (NYSE: NCLH) – have largely splashed in 2021. The new year is also already starting off on the wrong foot with a new sea storm setting in as the number of new COVID-19 cases hits historic highs.
The U.S. Centers for Disease Control and Prevention (CDC) issued a new warning on Thursday, urging even fully vaccinated people to avoid cruises. The agency’s updated travel health advisory says the COVID-19 virus easily spreads among people near cruise ships. The chances of catching the problematic virus are “very high” on board ships, even for passengers who have completed the initial vaccination process as well as additional booster shots.
It’s not a very good trip. The hardest hit of the travel industries hoped to end the year with an exclamation mark. Instead, we’re heading towards 2022 with another question mark.
The new CDC update isn’t as bad as it was earlier this year, when ships weren’t allowed from any US port at all, but it certainly still is. Wrong. It has taken a long time for the cruise industry to restart in this country. Now Carnival, Royal Caribbean and Norwegian face yet another wave of passenger cancellations and a potentially longer route on the way to eventual profitability.
It wouldn’t be a bad hurdle if the actions blocked the landing the first time around, but it didn’t. Inventories of cruise lines have lagged the market in 2021 despite the thorny obstacles to restart this year:
- Carnival stock is down 5% in 2021 through Thursday’s close.
- Norwegian Cruise Line Holdings is trading 17% less this year.
- Royal Caribbean is bucking the trend with a 4% lead in 2021, but lagging far behind market averages.
If 2021 has been a bad year for cruise line investors – despite the arrival of passengers on the bridge – it must be hard to be optimistic about how 2022 will play out. The three major cruise lines saw their stocks fall from 43% to 56% in 2020. They also took on new debt and increased their shares to stay afloat during downtime.
Many cruise line enthusiasts will be sailing anyway. The CDC update is a suggestion, not a mandate. However, that doesn’t mean the experience itself is the same. Many ports of call prevent vessels that have reported cases from making stops on their route. Many of these islands could use the infusion of tourist dollars, but that does not outweigh the safety of residents. Some cruise fans who have no problem accepting the COVID-19 risks inherent in boating may wait if they know destinations may be refused during a trip.
Things don’t have to end badly. We are seeing outbreaks of COVID-19 on many ships given the highly contagious nature of the omicron variant, but we are also generally seeing fewer passenger deaths and extended recoveries. This is a sign that the safety protocols implemented by the ships are working to some extent. It is also hoped that this fifth wave of the virus could be closer to the finish line of COVID-19, but we have seen how past forecasts of recovery have fallen flat. Carnival, Royal Caribbean and Norwegian enter 2022 with uncertainties and low expectations. If you are an investor, there is worse than buying cruise line stocks when there is blood in the water and expectations are low.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.