You may rock the boat when you rock your vote on Nov. 3. We're now two weeks away from the next presidential election, and the cruise line industry will be watching. Carnival (CCL 2.70%) (CUK 2.71%), Royal Caribbean (RCL 7.12%), and Norwegian Cruise Line Holdings (NCLH 5.37%) are still waiting to get back to business.
Will market leader Carnival fare better on the open waters with President Trump scoring another four years in the White House than if former Vice President Joe Biden returns to Oval Office? The answer might seem obvious on the surface, but take a deeper dive and you'll discover that things are more nuanced than you might think. Carnival may actually fare better under Biden than Trump, but to get there we need to go on this sea journey together.
Selling seashells by the seashore
It's easy to wonder how things can get worse for Carnival in 2020. The stock has plummeted 72% so far this year. Carnival's fleet came to a halt in March along with the rest of the industry, and with many COVID-19 casualties among passengers and crew members, it's not a surprise to see this as the last niche in the travel industry to get back to business.
However, we do know of one instance where Trump's presence has helped the industry's prospects. It was widely reported that near the end of last month -- with the Centers for Disease Control and Prevention (CDC) reportedly primed to extend the "no sail" order from the end of September through the end of January -- that the Trump administration objected to the four-month extension. The CDC caved (again, reportedly), extending the order banning U.S. sailings only through the end of October, but it did pepper its update with sobering and ominous language.
The CDC was quick to point out that things were not going well on the handful of cruises that had already started sailing out of Europe and Asia despite instituting health and safety measures. The implication here is that the CDC probably would have held off on sailings until February if the more cautious Biden was at the helm.
The timing of the election is interesting. Nov. 3 comes three days after the current order expires. The more likely course is that just before the election, the CDC extends its "no sail" order through the end of November, which would explain why Carnival, Royal Caribbean, and Norwegian Cruise Line have already canceled all stateside sailings through early December. If Biden wins, the CDC may push out the industry restart date to February.
This doesn't bode well for Carnival and its smaller rivals, but there's another side to this story. Let's set sail for the bullish argument for the industry under a Biden presidency.
A common argument against a Biden presidency for businesses is that wages and corporate tax rates will go up. Well, Carnival and its cruise ships have it pretty good on both of those fronts. Carnival, Royal Caribbean, and Norwegian Cruise Line are headquartered in Miami, but their ships sail under foreign flags. Cruise lines make the most of their foreign-flagged vessels and international waters to pay a pittance in corporate taxes. Income tax expense at Carnival over the past decade has never clocked in above 3%. It won't feel the pinch of U.S. corporate tax moves.
Biden's platform is calling for increasing the federal minimum wage to $15, another move that will eat into corporate profitability. Once again, here's a move that won't move the needle much at Carnival. Most of its crew members are not American. These are foreign-flagged ships, remember. There are U.S. landlubbers supporting the operations in Florida, but the vast amount of payroll exposure here is with the international crews.
This one-two punch is actually more like a one-two punch cocktail for the cruise lines. Higher corporate taxes and wages will make non-cruise travel specialties more expensive or less profitable. Carnival will cash in on the disparity, and it will also benefit from higher wages widening the middle class. Carnival operates a few fancy lines, but its namesake juggernaut is widely seen as an entry-level cruising option. In short, Carnival could actually benefit from higher taxes and wages across the country.
Biden may also help the industry by lifting the ban on Cuba as a port of call. The Trump administration nixed cruise ships from traveling to Cuba last year, a few years after travel restrictions were eased. Cuba is a controversial destination in Miami, but for the cruise lines it's exotic as well as a short and cheap fuel-efficient haul.
Add it all up, and a Biden win may delay the resumption of operations for most of Carnival's fleet, but the there are plenty of positives in areas that some may initially view as negatives. Carnival is going to be a risky buy before and after the election. If you're looking for safe stocks, you're looking under the wrong shell. However, the industry in general and Carnival in particular will fare well under both administrations the moment that COVID-19 and the cruise lines are passing ships.