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Why Carnival, Royal Caribbean, and Norwegian Cruise Line Shares All Jumped on Thursday

By Travis Hoium – Updated May 7, 2020 at 5:46PM

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Can this bounce last?

What happened 

Shares of cruise line stocks snapped back on Thursday after plunging dramatically on Tuesday following a warning by Norwegian Cruise Line Holdings (NCLH 2.54%) that it had substantial doubt it could continue as a "going concern." 

For today, Carnival (CCL 4.72%) shares were up as much as 7.2% before closing 5.5% higher. Royal Caribbean (RCL 1.95%) jumped 7.9% before closing 5.4% higher. And Norwegian Cruise Line was up 12.4% before closing 8% higher. As much as the news looked positive today, shares are all down sharply over the past week, and it's that decline over the long term that investors should focus on. 

CCL Chart

CCL data by YCharts.

So what

There wasn't any specific news from the cruise industry today, and as volatile stocks, it appears cruise shares are just magnifying the S&P 500's 1.5% gain on the day. Traders may also call this a dead cat bounce. 

The reason to think this bounce won't last has to do with what Norwegian Cruise Line said earlier in the week. Its financial position is such that it had to warn investors that it could eventually go bankrupt without more cash, which it eventually raised with $2 billion in financing. With consumer discretionary spending down and people canceling future voyages, I don't see a reason to think that cruise ships will be full anytime soon. So the future may still be bleak for the industry. 

Cruise ship on open water at sunset.

Image source: Getty Images.

What investors are left wondering now is whether or not companies like these three cruise lines have raised enough capital to survive a year or two without many customers. Norwegian did raise $2 billion Wednesday to give it what it called "well over" a year of liquidity without revenue. Carnival has raised over $6 billion since the COVID-19 pandemic shut down operations, and Royal Caribbean expanded its credit line by $2.2 billion. That's enough to last for a while, but when will customers feel safe on a cruise ship again? 

Now what

The more time passes, the more trouble cruise ships find themselves in. Plans to set sail continue to be moved back, and customers are now asking for their deposits back, which may cause a run on the balance sheet, even for the biggest cruise companies.

I don't think the worst is over, and while all cruise companies have some leeway to survive for a year or more, they can't last forever without customers. Today may have been a good day on the market, but the long-term trends are getting worse, and I wouldn't buy into a recovery for cruise stocks until COVID-19 is gone from travelers' worries. 

Travis Hoium 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
$46.65 (1.95%) $0.89
Carnival Corporation Stock Quote
Carnival Corporation
CCL
$9.65 (4.72%) $0.43
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
NCLH
$14.31 (2.54%) $0.35

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

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