Cruise ship stocks fell on Friday, as soaring COVID-19 case counts forced states to pause and even reverse their reopening plans.
By the close of trading, shares of Norwegian Cruise Line Holdings (NYSE:NCLH) and Royal Caribbean (NYSE:RCL) were down 5% and 4.5%, respectively, while Carnival's two stocks Carnival Plc (NYSE:CUK) and Carnival Corp (NYSE:CCL) were down 6.4% and 1.4%.
The U.S. continues to set frightening new records for coronavirus cases. That's forcing hard-hit states such as Florida and Arizona to slow their reopening plans, while Texas is going so far as to close bars and other alcohol-serving establishments.
Meanwhile, analysts are warning that a second wave of coronavirus infections could hit in the fall, right around the time the major cruise ship operators are hoping to resume sailing. If they're correct, health authorities may be forced to once again extend their no sail orders.
Carnival, Royal Caribbean, and Norwegian Cruise Line Holdings are already in a weakened position after burning through hundreds of millions of dollars while their ships have been stuck at port for several months. Yes, they've raised substantial amounts of capital from debt offerings to help them stay afloat, but interest payments will weigh on their profitability until that debt can be repaid.
Moreover, cruise lines will be forced to operate at less than full capacity in order to abide by social distancing directives once they are authorized to set sail. They will also need to spend more on cleaning and other safety measures to protect their passengers.
Perhaps most worrisome is that there can be no assurances that enough people will want to board cruise ships -- which have been prone to COVID-19 outbreaks -- once they are allowed to do so.
For all of these reasons, Carnival, Royal Caribbean, and Norwegian Cruise Line Holdings should be viewed as high-risk investments -- and their stocks' losses on Friday could be only part of a far larger downward move in the weeks and months ahead.