The travel industry is taking a beating these days. Between stay-at-home orders and tight travel restrictions investors aren't interested in cruise lines or airlines, and it shows. Cruise line operators have been the hardest hit. Shares of Carnival (NYSE:CCL) (NYSE:CUK), Royal Caribbean (NYSE:RCL), and Norwegian Cruise Line Holdings (NYSE:NCLH) have plummeted between 73% and 81% this year.
Airline stocks are holding up better, but the victory is only relative. American Airlines (NASDAQ:AAL), Delta (NYSE:DAL), and United (NASDAQ:UAL) have descended 61% to 71% in 2020. Perennial favorite Southwest Airlines (NYSE:LUV) is off 45%, a brutal year for its shareholders but the only ones in this lot that haven't seen their investment cut by more than half. Both industries have been battered, but let's see if cruise lines have a better chance of bouncing back.
Things seem pretty bad for the airlines these days. Southwest CEO Gary Kelly is bracing employees for potential furloughs, something that hasn't happened in the airline's 49-year history. Kelly argues that if things don't improve in the next three months, Southwest may have to become a smaller airline. Passenger loads are down more than 95% across the industry, and the airlines are scaling back on their scheduled flights.
As bad as a 95% reduction in passengers may seem, the cruise industry has it worse. Cruises haven't had a bon voyage for more than a month, and they keep pushing out a return to sailing. Both industries are bleeding money right now, and only the airlines have been recipients of U.S. government bailouts. The news got even better for them over the weekend with the U.S. Treasury Department releasing an additional $9.5 billion in funds from the Payroll Support Program for the airlines.
Though cruise lines haven't been as fortunate with bailouts given that they are registered in overseas markets with kinder taxation requirements, there is some hope overseas. Reports over the weekend had Germany's export credit agency providing a 12-month debt holiday providing nine figures in additional liquidity for at least Royal Caribbean and Norwegian Cruise Line. Carnival and its two smaller peers have already raised billions on their own in recent weeks to make it through the next few dry months.
It may not seem like a fair fight. Airlines have access to U.S. bailout initiatives, and folks have the choice somewhat to fly. However, before we tap airlines as the industry most likely to claw its way back into Wall Street fancy, we should consider where each industry was before the downturn.
It's not easy being an airline. Gross margin has declined at Southwest for four consecutive years. Revenue rose a mere 2% last year for the market darling, failing to top 5% in each of the past four years. Carnival's revenue has clocked in at 7% or higher in each of those four years.
Both industries are competitive, but airlines are more cutthroat. They need to match the most desperate carrier on fares, unlike the cruise industry where it's just three major players owning most of the popular lines and few options out of most ports. Cruise lines have also fallen harder, giving them more ground to potentially make up before revisiting their January highs.
Unfortunately for cruise line stock investors, it will probably be the airlines that bounce back first -- and even that isn't likely to happen anytime soon. Travelers are more likely to board a plane than they are a cruise ship, particularly in light of the negative headlines about the cruise industry during the coronavirus crisis. Airlines stocks will bounce back first.