A lot of the bullish shine has left the cruise line stocks these days. All three publicly traded players suffered double-digit percentage declines last week, and Royal Caribbean (NYSE:RCL) enters the new week trading nearly 40% below the high it set three weeks ago.

The near-term outlook isn't pretty. It's been more than three months since its last revenue-generating cruise returned to its debarkation port. Royal Caribbean has pushed out future sailings several times, and we're now down to mid-September as the earliest possible resumption date for the industry. With COVID-19 cases continuing to surge in U.S. port states and tens of thousands of crew members still on these ships as the cruise industry fumbles the repatriation process, one would have to have a high risk threshold to buy into cruise line stocks right now. If you feel compelled to take a chance on this volatile travel niche Royal Caribbean continues to be the smartest choice for investors. 

A wind tunnel and surfing simulator at the top of a Royal Caribbean cruise ship.

Image source: Royal Caribbean.

Sailing past the competition

The cruising industry isn't going to recover anytime soon. We know this year is going to be a financial disaster, and analysts see more red ink across all three players next year. It's not until 2022 when Wall Street pros see Royal Caribbean, Norwegian Cruise Line Holdings (NASDAQ:NCLH), and larger rival Carnival (NYSE:CCL) (NYSE:CUK) in the black, and even then we're still not going to be anywhere close to the profit levels of 2019. 

Company 2019 EPS 2022 EPS Change
Royal Caribbean $9.54 $4.27 (55%)
Carnival $4.40 $1.24 (72%)
NCL $5.09 $1.96 (61%)

Data source: S&P Global Market Intelligence. 

Looking out to 2022 isn't very comforting. Do you really want to buy into an industry in which profitability on a per-share basis will be 55% to 72% below where it was three years earlier? However, it's also important to explore the reasons why Royal Caribbean is in the best shape to bounce back.

We can start with business models. Carnival is the global leader in cruising. More than 11.5 million passengers board a Carnival-owned ship every year, roughly 45% of the global cruise market. It has a few high-end brands, but its flagship brand is known for its entry-level pricing for first-time cruisers. All of the negative headlines that have smacked the industry since the pandemic outbreak come at a price. Most active cruise buffs will be back when it's safe to do so, but Carnival's marketing team is going to have its work cut out for itself as it tries to woo first timers aboard.

Royal Caribbean and Norwegian Cruise Line cater to more experienced travelers, and usually folks that aren't swayed by a low price point. The problem with Norwegian Cruise Line is that it's too small. It's the distant bronze medalist in this sea race, and that makes it the most vulnerable. Royal Caribbean offers the best of both world when it comes to size and ideal customer demographics.

It's also no surprise that Royal Caribbean has historically commanded the thickest margins in the industry. Its net income margin has clocked in between 15.1% and 19.1% in each of the past four years. Norwegian Cruise Line checks in at 13% to 15.8% in that time. Carnival -- despite the advantage of scalability -- lags Royal Caribbean with 14.4% to 17% in annual net income margin.

Despite the recent sell-off all three stocks have more than doubled off their pandemic-fueled lows between late March and early April. Royal Caribbean stock's 141% increase from its low leads the pack. 

The next few months will be challenging, but it may even be an advantage that Royal Caribbean and its peers will be the last segment of the travel industry to bounce back. It will give the COVID-19 situation and even the current global recession more time to sort itself out. However, when the cruising industry does recover it's a safe bet that it will be Royal Caribbean leading the way.