What happened
Shares of cruise line giant Royal Caribbean (RCL +0.45%) jumped more than 6% this morning before giving back a portion of its gains. In noonday trading, Royal Caribbean stock remains up 2.1%.
This seems a curious result on a day when Royal Caribbean rival Carnival Corporation (CCL +0.68%) just reported a massive loss for its fiscal second quarter -- some $4.4 billion, including non-cash asset impairment charges of $2 billion. And yet, to an extent, it makes sense.
With three cruise stocks to choose from, is Royal Caribbean the one to pick? Image source: Getty Images.
So what
Over the past few months, cruise line stocks have traded more or less as a group, up en masse on some days, and falling in tandem on others.
But when you think about it, these cruise line companies are, in the final analysis, companies that compete one against the other for cruise customers. They're competitors, and logically, bad news for one competitor could end up meaning good news for its rival.
Now what
So what do recent headlines about Royal Caribbean's competitors imply for Royal Caribbean?
On Tuesday, Norwegian Cruise Line Holdings (NCLH 0.81%) advised that because of unspecified "travel and port restrictions" and guidance from the U.S. Centers for Disease Control and Prevention, it is suspending essentially all of its cruise operations until October at the earliest.
Today, Carnival reports that it is losing money faster than Wall Street expected it would, burning through about $650 million a month in cash expenses as it navigates the recession, and planning to "dispose of" six of its cruise ships in the next 90 days (and contemplating the sale of even more vessels) in an effort to reduce its monthly cash burn to $250 million monthly.
On Wall Street, investment bank Berenberg just downgraded Carnival stock to "sell" based on the Royal rival's report, calling Carnival a "highly unattractive" stock with an "unsustainable" debt load -- and unlikely to earn a profit for investors before 2025.
All of this may be miserable news for Norwegian Cruise, and for Carnival Corporation. But it kind of makes Royal Caribbean stock look the exception to the rule -- and perhaps this is the real reason Royal Caribbean shares are rising today.
