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Why Carnival, Royal Caribbean, and Norwegian Cruise Line Stocks Are Sinking Today

By Joe Tenebruso – Updated Jun 22, 2020 at 3:58PM

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The major cruise line operators are facing a host of serious challenges.

What happened

Cruise ship stocks fell on Monday following a slate of bad news for the travel industry.

As of 2:45 p.m. EDT, shares of Royal Caribbean (RCL -13.15%), Norwegian Cruise Line Holdings (NCLH -18.04%), and Carnival (CCL -23.25%) (CUK -23.01%) were down 7%, 6%, and 5%, respectively. 

So what

On Friday, the Cruise Lines International Association (CLIA) announced that its oceangoing cruise line members would voluntarily extend the suspension of cruise operations from U.S. ports until Sept. 15. 

"Due to the ongoing situation within the U.S. related to COVID-19, CLIA member cruise lines have decided to voluntarily extend the period of suspended passenger operations," the association said in a press release. "The current No Sail Order issued by the U.S. Centers for Disease Control and Prevention (CDC) will expire on 24 July, and although we had hoped that cruise activity could resume as soon as possible after that date, it is increasingly clear that more time will be needed to resolve barriers to resumption in the United States."

A novel coronavirus cell is blocking a cruise ship from sailing.

COVID-19 is preventing cruise ships from sailing. Image source: Getty Images.

On Monday, Carnival canceled all North American cruises through Sept. 30, marking the third time it has extended the date its ships would resume sailing since initiating a voluntary suspension of its operations on March 13. 

"During this unprecedented pause in our business, we have continued to assess the operating environment and confer with public health, government, and industry officials," Carnival president Christine Duffy said. "We have watched with great interest as commerce, travel and personal activities have begun to start back up, and once we do resume service, we will take all necessary steps to ensure the health and safety of our guests, crew, and the communities we bring our ships to in order to maintain public confidence in our business."

Now what

Carnival, Royal Caribbean, and Norwegian Cruise Line are burning through millions of dollars each day that their ships remain stuck at port. In its recent second-quarter earnings release, Carnival said that it alone would lose roughly $650 million each month that its voyages were suspended. 

The major cruise lines have been forced to sell massive amounts of debt to raise enough cash to stay afloat while their ships are docked. Some, like Carnival, have also begun to sell off some of their ships to raise more capital. Despite these efforts, some cruise companies, such as Pullmantur, a joint venture in which Royal Caribbean owns a 49% stake, have been forced to declare bankruptcy.

To stem the bleeding, cruise ship operators have offered guests large credits and other incentives to reschedule their trips in place of canceling them. But each time they push back the dates that their ships will resume sailing, they increase the chances that more guests will choose to receive full refunds. That, in turn, could further drain their cash reserves.

Worse still, with COVID-19 case counts rising at an alarming rate in many U.S. states and international locations, there can be no assurances that the CDC and other health authorities will allow cruise ships to resume sailing by October.

For all of these reasons, Carnival, Royal Caribbean, and Norwegian Cruise Line Holdings should be considered high-risk investments.

Joe Tenebruso 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.
$37.90 (-13.15%) $-5.74
Carnival Corporation Stock Quote
Carnival Corporation
$7.03 (-23.25%) $-2.13
Carnival Corporation Stock Quote
Carnival Corporation
$6.19 (-23.01%) $-1.85
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
$11.36 (-18.04%) $-2.50

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

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