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Will Royal Caribbean and Norwegian Cruise Line Also Start Sailing in August?

By Rick Munarriz – Updated May 5, 2020 at 5:00PM

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Carnival firms up plans to start making money again. Its two smaller rivals should follow suit.

There's a glimmer of hope for the cruise line industry: Carnival (CCL 3.60%) (CUK 3.60%) is drawing a new line in the private-beach sand. Despite the company cancelling even more upcoming cruises on Monday -- pushing out new dates until later in the summer travel season -- we're seeing the first signs of a phased relaunch for the industry.

Carnival's announcement to start sailing eight ships out of three ports in Florida and Texas on Aug. 1 is smarter than you think. Even if on the surface this seems like another goalpost that will get moved out as we get closer, this is the first time that Carnival has spelled out a phased reopening with the exact fleet and sailings it plans to roll with for its opening move. Royal Caribbean (RCL 3.91%), and Norwegian Cruise Line Holdings (NCLH 4.26%) might want to take notes.

A passenger ziplines in Labadee with a Royal Caribbean ship in the background.

Image source: Royal Caribbean Holdings.

It's always going to be a rocky embarkation process

The chances are slim that Carnival will be able to get its first eight ships sailing in less than three months. The world's largest cruise line operator's Aug. 1 restart date is just a week after the current no-sail order expires on its own, and it wouldn't be a surprise to see that 100-day order get extended by the U.S. Centers for Disease Control and Prevention again with COVID-19 remaining a public health emergency. Carnival also has to get its tired crew members off the ships and likely find some replacements after that process is complete.

This is still the right move for Carnival. If it does have to cancel its August sailings, we're talking about passengers on just eight ships in its fleet to move around. If the cruises are able to take place, it's a great way to gauge safety and sanitation improvements, especially since some forecasts show a spike in coronavirus activity later this summer. Carnival will also have fewer cabins to fill, and that's true whether or not it decides to limit capacity to space out its passengers. With demand likely to be light until consumers see how the first wave of passengers holds up, tightening the grip on supply is the only way to tackle the industry's relaunch.

Royal Caribbean and Norwegian Cruise Line should follow Carnival's lead here. The two cruise lines have pushed their schedules out to June, but those planned sailings would require the no-sail order to be lifted prematurely -- and that's unlikely to happen in the current climate. They might as well bite the bullet and aggressively market a small number of sailings set to take place after the current CDC-mandated shutdown order at least has a chance to organically expire.

Investors, passengers, and the cruise lines themselves hate to be in this situation. There will never be a perfect time to reopen the economy, and inevitably, cruise ships will start sailing again. However, it's one thing for a restaurant, amusement park, or even airline to initially cap its capacity, as we will see as this summer plays out. A cruise vacation is a much longer experience, with everyone aboard only as strong as the weakest link on the ship. It's not the same dynamics as live sports or a movie theater, where the experience ends in hours.

It still doesn't hurt to attempt ramping up the industry. Start small. Start slow. Milestones are more important than profitability here. Limit exposure, and expand as conditions improve. You don't take a crowd to a minefield party, and given the iffy economy, it's not as if a crowd would RSVP to the saltwater soiree anyway. There will be eyebrows raised when the cruise industry does in fact get going again, but firming up plans is the first step toward staying in business at this point.

Rick Munarriz 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
$45.76 (3.91%) $1.72
Carnival Corporation Stock Quote
Carnival Corporation
CCL
$9.22 (3.60%) $0.32
Carnival Corporation Stock Quote
Carnival Corporation
CUK
$8.05 (3.60%) $0.28
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
NCLH
$13.96 (4.26%) $0.57

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

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