For the second day in a row, shares of major cruise line stocks Norwegian Cruise Line Holdings (NYSE:NCLH), Carnival (NYSE:CCL) (NYSE:CUK), and Royal Caribbean (NYSE:RCL) are falling on Friday, down 7.1%, 6.7%, and 5.8%, respectively, at 1:34 p.m. EDT today.
There are no obvious catalysts behind today's declines, unless you count the announcement by Carnival subsidiary P&O Cruises Thursday morning that it was extending its pause in cruising through January 2021.
But popular travel industry analyst ThePointsGuy.com did raise a worrisome issue on Thursday when it noted that around the globe, a total of nine cruise lines have resumed at least limited sailings, none of which is Carnival, Royal Caribbean, or Norwegian. These three major cruise lines have canceled pretty much all their cruises through early November.
But not all the news is bad. At least one of the nine cruise lines that has resumed operations in Europe, Costa, is a subsidiary of Carnival. Another, Germany's TUI Cruises, is partly owned by Royal Caribbean, according to data from S&P Global Market Intelligence. These lines starting back up should provide at least a trickle of revenue to their parent companies.
Even more important than a near-term, sputtering revival in cruising activity are the long-term implications of Carnival's decision to retire or dispose of 18 of its own cruise ships. By reducing capacity in the industry, Carnival is helping to ensure that the cruise lines that do survive this current recession will emerge with their pricing power intact.
As Cruise Industry News noted on Thursday, these 18 ships were already overdue for removal. Smaller and older than the average cruise ship on the seas today, the vessels in question are calculated to have accounted for only 3% of Carnival's operating income in 2019 but incurred 12% of its operating costs. Getting them out of the fleet, therefore, won't just help avert a price war once the world resumes cruising in earnest. It will help ensure that Carnival is as profitable as it can be, once that happy day arrives.