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Why Carnival, Royal Caribbean, and Norwegian Cruise Stocks Just Got Torpedoed and Are Going Down

By Rich Smith – Jun 19, 2020 at 3:36PM

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The cruise line industry just extended its own suspension of services until September.

What happened

America's cruise lines are extending their involuntary corona-cation -- but this time they're doing so voluntarily.

Just before 2 p.m. Friday, the Cruise Lines International Association (CLIA), the trade association representing Carnival Corporation (CCL -4.25%) (CUK -4.66%), Royal Caribbean (RCL -0.87%), and Norwegian Cruise Line Holdings (NCLH -0.75%), among others, announced that "the association's ocean-going cruise line members will voluntarily extend the suspension of cruise operations from U.S. ports until 15 September 2020."  

As of 2:25 p.m. EDT, shares of Carnival stock are down 5.1%, Norwegian Cruise Line Holdings is down 5.8%, and Royal Caribbean is suffering worst of all -- down 6.3%.

3 colorful arrows all pointing down

Image source: Getty Images.

So what

If you recall, it was way back in April that the U.S. Centers for Disease Control and Prevention (CDC) last extended its no-sail order forbidding cruise ships from sailing out of U.S. ports before July 24. To date, the CDC has not updated or extended that order.

Regardless, observing that "it is increasingly clear that more time will be needed to resolve barriers to resumption in the United States," CLIA members have agreed "to err on the side of caution" and "further extend our suspension of operations from U.S. ports until 15 September." 

Now what

This "extension of suspension" will come at a cost. According to CLIA, each day the cruise industry remains shut down costs the U.S. economy about $110 million "in economic activity."

More pertinently to cruise line investors, though, Norwegian Cruise says it is burning through cash at the rate of $110 million to $150 million each month, and has probably fewer than 10 months of cash left to it. Royal Caribbean is burning $250 million to $275 million per month during its shutdown, and Carnival just revealed a $650 million-a-month burn rate. And now, according to CLIA, each of these cruise lines can expect to keep burning cash for nearly two months longer than the most optimistic scenario for their respective returns to service.

Long story short? We all probably suspected that the CDC would extend its no-sail order eventually, and that cruise lines would have to remain out of service for longer than that optimistic July 24 scenario.

Now, sadly, that out-of-service suspicion has been confirmed, even if it didn't actually come at the behest of the CDC.

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 Stock Quote
Royal Caribbean
RCL
$43.47 (-0.87%) $0.38
Carnival Stock Quote
Carnival
CCL
$7.43 (-4.25%) $0.33
Carnival Corporation & Plc Stock Quote
Carnival Corporation & Plc
CUK
$6.55 (-4.66%) $0.32
Norwegian Cruise Line Holdings Stock Quote
Norwegian Cruise Line Holdings
NCLH
$13.22 (-0.75%) $0.10

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

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