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Why Cruise Line Stocks Plunged Again Today

By Travis Hoium – Updated Oct 28, 2020 at 1:53PM

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There's no end in sight to the COVID-19 pandemic and that's terrible news for cruise line stocks.

What happened 

The cruise line industry can't seem to catch a break in 2020 and there aren't any indications that conditions for the industry are going to get better. Not only is the CDC advising against cruise line travel, the number of COVID-19 cases in the U.S. are quickly rising and that raises questions about how long it will be until people want to take cruises. 

Shares of the biggest names in the industry were down nearly double digits in early trading. Royal Caribbean's (RCL 0.90%) shares fell as much as 6.6%, Carnival Corporation (CCL -0.10%) (CUK 0.11%) dropped 9.9%, and Norwegian Cruise Line Holdings (NCLH 1.36%) fell 9%. Shares of the companies were down 6%, 9.6%, and 8.6% at 11:40 a.m. EDT.  

Cruise ship sailing at night.

Image source: Getty Images.

So what

There are a number of things going on today, so let's go through them one by one. The first is that the market is down big and highly volatile stocks like cruise line stocks can often exaggerate the market's overall move. As I'm writing, the S&P 500 is down 2.7% and stocks are falling across the board. 

The second factor to look at is COVID-19. A big reason the market is down is that COVID-19 cases are surging across the country and even if cruise lines open it's not clear that anyone will want to travel, much less take a cruise. Even if you're bullish on the cruise line industry long-term, a surge in cases is going to push back demand by months. 

Governments don't seem particularly eager to allow cruise lines to operate or encourage customers to sail either. Fellow contributor Rick Munarriz highlighted today that Princess Cruises suspended departures from Australia and New Zealand through the end of May as the two countries restrict travel because of COVID-19. In the U.S., regulators haven't gone so far as extending the no-sail order that expires on Oct. 31, but the CDC does suggest "travelers defer all cruise travel worldwide." That's not exactly a ringing endorsement for the cruise line industry from the U.S., where restrictions are relatively loose compared to countries that have contained COVID-19 better.

Now what

It's hard to see how any of this ends well for Royal Caribbean, Carnival, or Norwegian Cruise Lines. The consumer discretionary companies are burning through hundreds of millions of dollars in cash just to keep their fleets afloat and ready to take passengers when restrictions are lifted, but the delay never seems to end. With COVID-19 surging around the world and a vaccine not expected to be distributed widely until at least the middle of next year, the wait will continue. 

If the current surge in COVID-19 cases continues, it's unlikely cruise lines will see much demand for cruises, even if they are allowed to sail. And until we know more, this is an industry I would stay far away from because I think bankruptcy is on the horizon for one or more cruise line company in the next year. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

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