The cruise ship industry has gotten hit hard by the coronavirus pandemic, and Carnival (NYSE:CCL) (NYSE:CUK) was one of the biggest casualties among stocks in the S&P 500. Because of the COVID-19 outbreak, Carnival and its peers have had to suspend cruises for months, and that caused a liquidity crisis that pushed their financial conditions to the brink. Now, though, investors have gotten a lot more optimistic that things might get back to normal sooner than originally feared, and that's prompted shares to more than triple from their lowest levels in early April.

Despite the big bounce in its stock, Carnival isn't out of the woods yet. It needs a lot of things to go right in order to justify the big recovery in its stock price. If three particular things don't happen soon, it could cause Carnival's stock to lose much or all of its recent hard-fought gains.

Carnival-branded cruise ship docked on a mostly sunny day, with a few passengers walking on the dock.

Image source: Carnival.

1. Carnival needs to set a realistic but firm reopening date

The biggest challenge that Carnival faces right now is not knowing when it will be able to resume sailing. To a large extent, Carnival is at the mercy of the regulators that oversee public health and travel right now. The nature of the cruise ship industry often requires that operators comply with regulations in several different countries to run certain trips, and right now, that makes for a logistical nightmare as various jurisdictions take different approaches toward how and when they intend to reopen.

Until now, Carnival has taken the same approach as many travel companies, allowing would-be passengers to book travel only to announce later that it will need to cancel or postpone those trips. Last month, for instance, Carnival said that it intended to restart operations on August 1. However, the restart will at best involve just eight ships, including ports in Miami, Galveston, and Port Canaveral. Moreover, the Centers for Disease Control and Prevention have still expressed concerns about cruise ships generally, and countries other than the U.S. have expressly prohibited cruises until later dates. That prompted Carnival to suspend cruises in Australia, Canada, and Taiwan well beyond the August 1 date.

Teasing a potential opening only to delay it further on a month-by-month only erodes confidence that passengers will ever be able to sail again. The better approach is to work with regulators to come up with more reasonable firm dates that are likely to be realistic, so that Carnival can stop disappointing its best, most enthusiastic customers.

2. Carnival needs to make Congress happy

Part of what's holding regulators back from supporting cruise ship companies is that they haven't yet come up with elaborate safety plans that describe what post-coronavirus cruises might look like. In early May, the House Transportation and Infrastructure Committee asked Carnival CEO Arnold Donald for extensive information about how the operator plans to deal with the unique public health challenges that cruise ships present.

Carnival's website explains, "We are currently assessing enhanced health and safety protocols in light of COVID-19 and how they may impact our future offerings." Yet most of the information Carnival has released is basic, simply stating measures like more frequent cleaning and greater availability of handwashing sinks and hand sanitizer. Investors will want to see a full plan that can satisfy Congress, in the hope that the CDC will be able to lift its no-sail order more quickly.

3. Carnival needs to stop diluting shareholders

Finally, Carnival shareholders need the company to act quickly to minimize its cash burn so that it can stop raising money at unfavorable terms. In early April, Carnival had to pay 11.5% on $4 billion in three-year notes, and it also sold $1.75 billion in convertible debt paying 5.75% and convertible at $10 per share. It also sold 62.5 million shares of stock at $8 per share -- a great deal for those who bought in, but it will potentially hold back the stock's long-term recovery.

Having to raise that capital was bad enough, but it did keep Carnival afloat. Any future offerings could further reduce the likelihood that Carnival stock can advance further from here -- and reduce the payoff for brave investors even if Carnival is wildly successful.

A lot of uncertainty

Carnival stock is getting a lot of attention from thrill-seeking short-term traders right now, because its stock is volatile in both directions. For long-term investors, Carnival has the potential to bounce back fully, but its share price has already reflected much of the optimism surrounding the industry right now. Would-be buyers of the stock now need greater assurances that these three bullish signs are coming soon, or else they could see much of the stock's recent gains sink back under the sea.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.