Carnival (CCL -0.56%) (CUK -1.15%) canceled most of its sailings through the end of the year on Thursday, pushing some of its ship restarts well into 2021. This is normally bad news (and it is, on the surface), but there is a strong possibility that we are finally at the end of cruise cancellations.
It's also important that six ships aren't getting bumped off course. Those Carnival vessels will resume sailings next month, limited to departures out of Miami and Port Canaveral, Florida. Things could always change between now and the end of this month, but it does offer hope to Carnival and smaller rivals Royal Caribbean (RCL -0.85%) and Norwegian Cruise Line Holdings (NCLH -1.18%) that we are close to the first step of what promises to be a long voyage back to business as usual.
Wake me up when October ends
The cancellations will sting Carnival financially, but with $8.2 billion in liquidity at the end of August, they are definitely not going to be a backbreaker. The industry has the money to get through the cancellations. Carnival and Royal Caribbean in particular have made it easy for folks on canceled sailings to get their money back in a timely manner. The real problem for the industry is winning back the trust of consumers.
A little less than half of the displaced passengers this year have opted for future cruise credits, but we're starting to bump up against their rescheduled voyages. They're not coming back if they get denied again. Folks who were lucky enough to walk away with cash refunds aren't going anywhere near another booking until they see cruises running consistently again on the open seas. Travelers who have never taken a cruise are obviously not getting anywhere near a ship anytime soon. In short, the cruise industry is another round of cancellations or two away from assuring its own obsolescence.
For now, it appears that there's some daylight at the end of the long gangplank. The Centers for Disease Control and Prevention extended its no-sail order only through the end of October. There are reports that it was seeking to cancel all U.S. sailings until February -- and there's plenty of gloom and doom in the CDC's update about how rampant COVID-19 cases and deaths were on ships even after they unloaded their passengers, with just the crew members on board -- but it's finally conceivable that we're now weeks away from the first U.S. sailings.
The first few headlines after U.S. cruises resume will not be pretty. Royal Caribbean and Norwegian Cruise Line will force crews and passengers to jump through a lot of hoops, making the experience a shell of what it used to be. Those negative headlines will pass, and so will your urge to short these stocks instead of making a speculative purchase.
With the slow ramp-up, it's not as if Carnival, Royal Caribbean, and Norwegian Cruise Line will need that many passengers in the first wave of voyages to fill the limited number of ships with limited passenger capacity. There will be takers, hungry for a semblance of what cruising used to feel like. They'll be fine with mask requirements, daily screenings, and limited ports of call and shore excursions until we've licked the pandemic.
The cruise industry can outlive COVID-19, but it can't overcome a lack of consumer confidence. Getting ships sailing and doing so safely are the keys for survival, and November can't come soon enough for the industry.