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Why Shares of Royal Caribbean Were Down in February

By Lou Whiteman - Mar 5, 2020 at 1:59PM

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Coronavirus continues to take its toll on travel demand.

What happened

Shares of Royal Caribbean Cruises (RCL -10.26%) fell 31.3% in February, according to data provided by S&P Global Market Intelligence, the company's second consecutive month with a double-digit decline. The culprit is the rapid spread of the COVID-19 coronavirus outbreak, which is threatening to sink travel and cruise demand in 2020.

So what

The travel industry has been hit hard by the growing outbreak, and the cruise business, which has a long history of dealing with headlines involving viruses spreading rapidly around a ship, has had it particularly rough.

Royal Caribbean and other cruise operators have been forced to cancel some sailings into areas impacted by the virus, and ships have been denied entry to local ports due to virus concerns.

A cruise ship leaves an island port.

Image source: Getty Images.

Investors have known for some time that the coronavirus would weigh on first-quarter results. The stock fell in February as it became increasingly clear that the impact of the outbreak would go well beyond the current quarter, calling into question the company's outlook for the U.S. summer vacation season and all of 2020.

Now what

The issue didn't go away with the calendar turning to March. On March 2 it was reported that 82 individuals tested positive for influenza on a Royal Caribbean ship heading toward Baltimore. And the cruise industry was dealt a fresh coronavirus blow on March 5 when thousands of people on the Grand Princess, which is owned by Carnival, were exposed to coronavirus, leading to the ship being barred from docking in San Francisco as scheduled.

Royal Caribbean shares are down another 19% in the early days of March and have now lost half of their value so far in 2020. Presumably once the virus is eventually contained, memories will fade and traffic will return. But if there are too many nightmarish stories like the one passengers on the Grand Princess are currently enduring, that recovery could take time to materialize.

With so much uncertainty lingering over the sector, investors can't be blamed for abandoning ship.

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