Shares of Royal Caribbean Cruises (NYSE:RCL) fell 12.3% in January, according to data provided by S&P Global Market Intelligence, weighed down by the rapid spread of the Wuhan coronavirus. The outbreak will clearly take a toll on the cruise ship operator's near-term results and could impact demand for quarters to come.
Royal Caribbean was one of a number of cruise, airline, and casino stocks under pressure in January due to the spreading coronavirus. China accounts for about 5% of global cruise capacity, and the country's ports tend to be some of the more profitable destinations for the industry. Royal Caribbean, according to Wells Fargo research, is more exposed than its rivals, generating about 6% of total capacity from China.
The company canceled nearly a dozen cruises sailing out of Chinese ports, actions that it said would reduce fiscal earnings by upwards of $0.25 per share.
Royal Caribbean's operations were already impacted by the wildfires in Australia. The question is whether the outbreak will simply be a short-term drag on revenue and earnings, or if fears about the virus will cause travelers to postpone vacation plans and eat into bookings throughout 2020.
The broader markets have brushed off virus concerns in recent days, but Royal Caribbean shares remained flat in the early days of February even as the S&P 500 has rallied. There's some logic to that: While much of the trading around the coronavirus has been based on speculation about how various companies and industries might be impacted, Royal Caribbean definitely will see some negative effect on results.
Elsewhere there is reason for optimism, with management expecting healthy booking trends in U.S. and European markets. The outlook for the cruise industry remains bright, but in the near term, expect coronavirus to dominate discussions around stocks like Royal Caribbean.