All three of the major cruise lines had already reported quarterly results by the time that Disney (NYSE:DIS) stepped up with its fresh financials on Thursday. Cruising is just a small part of the media giant's entertainment empire, but it's something that investors in Carnival (NYSE:CCL), Norwegian Cruise Line Holdings (NYSE:NCLH), and Royal Caribbean (NYSE:RCL) should pay attention to in assessing the industry's turnaround prospects.
Disney operates just four cruise ships, but they are premium-priced experiences that have proved popular with young families and even some who are not so young. With Disney expecting to add another three ships in the next five years, it's a great way to get a pulse on the industry once you've checked in on the Big Three, and Disney had some good and some bad news for cruising buffs.
Under the sea
We can start with the bad news. Like Carnival, Norwegian Cruise Line, and Royal Caribbean, the House of Mouse threw in the towel for sailing again in 2020 earlier this month. After the U.S. Centers for Disease Control and Prevention issued guidance for what cruise lines needed to do to resume operations, it became clear that nobody is going on a U.S.-originating cruise until January at the earliest.
The ships will need to expand their medical and lab capacities to tackle on-board testing and dealing with infected passengers and crew members. They will also need to run simulated cruises, making sure that they have effective protocols in place. The industry is rallying on encouraging vaccine news this week and last week, but those pandemic solutions will take several months to play out. Disney will be fine, but the largest players are on the clock. Adhering to the CDC's new guidelines is the key to getting back out to sea early next year instead of well into next year.
The new regulatory protocols will "result in delays beyond what we had hoped in terms of getting our ships back in service and making magic for our guests," Disney CEO Bob Chapek said during Thursday's earnings call, adding this optimistic note: "I guess the best news out of all of it is that we now do see some light at the end of the tunnel."
The better news here is that Disney also points out that it's seeing strong demand for the back half of fiscal 2021 and into 2022 when the first of its three new ships will start sailing. Royal Caribbean also noted that near-term booking weakness improves dramatically in the second half of next year, but the key word in Disney's comment is that it's talking about fiscal 2021. The back half of Disney's fiscal 2021 begins in April -- not July, as with Royal Caribbean and Norwegian Cruise Line.
There are many variables here. A lot of the bookings for the second half of next year for the industry are being made with house money: earlier deposits and payments made by passengers on canceled sailings who chose to rebook their voyages.
But it's still a good sign that folks aren't giving up on the industry that hasn't set sail in the U.S. in more than eight months. You may not think of checking in on a media stock as a way to get a fresh read on the cruise industry, but Disney delivered news on that front that was mixed but ultimately positive.