A raft of good news couldn't keep cruise line stocks afloat amid a falling stock market on Thursday -- but Friday is dawning a bit brighter for cruise ship stocks.
By 11:45 a.m. EDT, shares of Norwegian Cruise Line Holdings (NYSE:NCLH) were helping to lead the stock market higher with a gain of 4.5%. Royal Caribbean (NYSE:RCL) was up an even better 5.9%, while industry giant Carnival Corporation (NYSE:CCL) (NYSE:CUK) was up a whopping 8.8%.
Carnival Corporation probably deserves the lion's share of the credit for today's rally. This morning, Carnival filed an 8-K business update with the SEC. Carnival noted that it still expects to burn through cash at the rate of "approximately $650 million" a month through the end of this year. However, Carnival is also continuing to take steps to reduce that burn rate.
In particular, whereas as recently as last month, Carnival had plans to sell six ships out of its fleet to reduce capital spending requirements, now Carnival says its total ship "disposals" could be twice that number. Indeed, Carnival already sold one ship in June. At least five more, and perhaps has many as eight more sales are anticipated "in the next 90 days." Four more sales, agreed upon last year, have yet to close. In total, the company plans to unload 13 ships, or about 9% of its total capacity, helping to move the company toward its goal of reducing cash burn rates to $250 million a month or less.
At the same time as it is cutting costs, Carnival notes that it's continuing to raise cash to help tide it over through the recession. Since March, the company says, it has "raised over $10 billion through a series of financing transactions," including taking out a further $2.8 billion in loans on June 30, and negotiating "debt holiday" amendments deferring repayments of principal on its more than $14 billion in debt until its situation stabilizes.
Finally, Carnival reiterated its announcement, confirmed just yesterday, that it will resume cruising out of Germany through its AIDA cruise line brand. AIDA is only one of nine Carnival brands, but any movement out of port at all at this point has to be seen as good news.
Carnival is not the only cruise company with arguably good news to report today. Elsewhere in the sector, rival Royal Caribbean just announced that it has negotiated the purchase of the one-third stake in subsidiary Silversea Cruises that it did not already own, paying the $245 million acquisition cost with its own common stock (probably in order to conserve cash -- expect that to remain a theme in the cruise industry for the foreseeable future).
This is a curious development -- and perhaps even more significant to cruise industry investors than Carnival's business update. Why, one might ask, would Royal Caribbean double down on its business by spending even its own stock to acquire a larger footprint in cruises, if it expected things to continue to get worse for the cruise industry?
The obvious answer is that it wouldn't. And the logical conclusion, therefore, is that Royal Caribbean is starting to see a light at the end of this long tunnel. Royal Caribbean is positioning itself to grab a larger share of the profits once consumers resume spending their discretionary dollars on cruise trips once again. This is therefore a bullish move for Royal Caribbean investors, and probably for investors in Carnival and Norwegian Cruise Line Holdings as well.