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Why Carnival Corporation, Royal Caribbean, and Norwegian Cruise Line Stocks Crashed This Morning -- Then Made It All Back

By Rich Smith – May 4, 2020 at 2:35PM

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It's a bad news, good news kind of a day for cruise line investors.

What happened

In early trading Monday, shares of Carnival Corporation (CCL -23.25%) sank 8.5% and Royal Caribbean (RCL -13.15%) dove 9.2%, while Norwegian Cruise Line Holdings (NCLH -18.04%) fared worse than either of those -- plunging 12.5%.

The arrival of the afternoon, however, has seen all three cruise stocks erase their losses. By 1 p.m. EDT, Royal Caribbean had even eked out a 0.5% gain, Norwegian was up 2.4%, and Carnival was up 3.1%!

What's up with that?

Collage showing a cruise ship, a man in a face mask, and a coronavirus cell.

Image source: Getty Images.

So what

The initial declines in cruise industry stocks are the easiest to explain. Over the weekend, The Wall Street Journal ran a multi-page expose into how the global cruise industry performed in mitigating the risk of spreading the COVID-19 contagion in the outbreak's early days. The title of the report should give you a clue what the Journal thought of their performance: "Cruise Ships Set Sail Knowing the Deadly Risk to Passengers and Crew."  

Despite having "ample evidence to believe their fleet of luxury liners were incubators for the new coronavirus," said the article, Carnival, Royal Caribbean, and Norwegian Cruise (yes, all three were called out by name -- not a blue-chip cruise line was spared) "continued to fill cruise ships with passengers, endangering those aboard and helping spread COVID-19 to the U.S. and around the globe."

Adding to the pain, Norwegian Cruise Line Holdings was singled out in a report on Miami lawyer Jim Walker's Cruise Law News website, detailing how the company recently loaded up its Norwegian Escape liner with crew bound for Miami to transfer to other vessels. The report quotes crew members saying the company has "ridiculously overcrowded the Escape," "with no social distancing observed" and crew members even denied the use of single cabins that would facilitate isolation -- in order, apparently, to avoid contaminating just-cleaned cabins.   

Now what

Thus, it appears that bad press -- and fears of the bad lawsuits they may give rise to -- is what started off the day depressing the shares of all three companies. Now what turned them around, and can it continue?

This morning, Carnival Corporation's Carnival Cruise Line subsidiary announced that it now has a "plan to phase in a resumption in our North American service this summer, beginning on August 1 with a total of eight ships [sailing out of] Miami, Port Canaveral and Galveston."  

"All other North American and Australian markets [will remain paused] through August 31," and "all North American cruises from June 27 to July 31 will be cancelled," cautioned Carnival Cruise. But just the prospect of some sailing going on, thereafter, appears to have lifted investor spirits despite the negative headlines over the weekend.

Granted, Carnival's announcement could still be rendered moot by another "no sail order" extension from the CDC. But for now at least, the mood is ebullient: There's a light on the horizon, and this crisis might eventually end.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
RCL
$37.90 (-13.15%) $-5.74
Carnival Corporation Stock Quote
Carnival Corporation
CCL
$7.03 (-23.25%) $-2.13
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
NCLH
$11.36 (-18.04%) $-2.50

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

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