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Why Travel Stocks Jumped Big (and Then Fell Back) on Thursday

By Travis Hoium - Mar 27, 2020 at 7:08AM

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Travel stocks did well -- for a while.

What happened 

Travel stocks looked they'd have a big day on Thursday as the markets recovered and Federal Reserve Chairman Jerome Powell said he would support the financial markets. However, gains in some cases proved short-lived.

Shares of cruise company Carnival Corporation (CCL 0.72%) were up as much as 23.1% in early trading, and Royal Caribbean Cruises Ltd (RCL 0.56%) jumped as much as 17.6%. Shares of Carnival finished higher by 14.6%, but Royal Caribbean ended up down 4.2% for the day. Marriott International Inc (MAR -1.25%) climbed as much as 12.6% but closed down 2.9% on Thursday. 

Cruise ship docked near a sandy beach.

Image source: Getty Images.

So what

Powell said that the economy would recover, although he didn't know when that would be. When it does, though, he indicated that the Federal Reserve would keep credit markets open and rates low so that businesses could borrow and recover. 

The volatility in travel stocks also comes as unemployment claims surged to a whopping 3.3 million last week alone. Millions of service industry workers in restaurants and hotels are without jobs as the economy grinds to a halt. 

It didn't hurt that the market overall was up big today. The Dow Jones Industrial Average rose 6.4% and the S&P 500 gained 6.2% in trading Thursday. Yet it's disappointing that Royal Caribbean and Marriott couldn't hold onto their gains, especially since they've been some of the biggest losers since the COVID-19 outbreak hit. 

Now what

The ups and downs of hotels and cruise line operators have been dizzying for weeks. But the Federal Reserve and Congress look like they're going to pump as much money as possible into the economy, in the form of checks to consumers and loans to businesses. 

Even so, there's a long way to go in the COVID-19 pandemic, and the impact on the travel business is extremely uncertain. Bookings may be down significantly through the end of summer, and it's not certain how much support these companies will get from the government. 

While I think the travel business will return to normal eventually, there could be a lot of turbulence ahead. Restrictions on business will be in place for the next month at least throughout the U.S., and companies are already cutting non-essential travel. That could leave a lasting impact on hotels. 

Cruise lines may be hit even harder given their confined environment and reported outbreaks on multiple ships. 

The other risk hanging over all stocks is a recession that's likely already begun. That could hit demand for much longer than just a few weeks of COVID-19 related shutdowns and may drag on the whole travel industry for 2020. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool recommends Carnival and Marriott International. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Marriott International, Inc. Stock Quote
Marriott International, Inc.
$157.01 (-1.25%) $-1.98
Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
$39.67 (0.56%) $0.22
Carnival Corporation Stock Quote
Carnival Corporation
$9.82 (0.72%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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