It seems as if every time Norwegian Cruise Line Holdings (NYSE:NCLH) draws a line in the sand, a big wave comes in and washes it all away. The country's third-largest cruise line operator pushed out the restart date for its sailings on Wednesday. Again.
Norwegian Cruise Line won't be welcoming passengers on revenue-generating journeys until March at the earliest, a cruel reminder that investors were premature in cheering on the U.S. Centers for Disease Control and Prevention replacing its "No Sail" order with a conditional one back in late October. Requirements for Norwegian Cruise Line, Carnival (NYSE:CCL) (NYSE:CUK), and Royal Caribbean (NYSE:RCL) to build out testing labs, amp up safeguards, and run a few trial sailings on each ship have proven to be challenging obstacles in returning back to business.
Ignoring the rough waters
In the past five weeks with the new order in place we've seen Norwegian Cruise Line delay its resumption by three months. If you think that this is the kind of development that would rattle cruise line investors, you may want to pull up a stock chart.
Shares of Norwegian Cruise Line have soared 41% since the end of November, and it's the relative laggard of the shipyard. Royal Caribbean and Carnival shares are up a blistering 43% and 54%, respectively, in that time. Investors are ignoring the near-term challenges, gravitating to the favorable vaccine news that promises some light at the end of the COVID-19 tunnel.
Betting on things going smoothly is a gamble, of course. The CDC recently bumped the risks of cruise ship travel to Level 4, its highest risk rating for contracting COVID-19. Until the pandemic is globally eradicated, any restart is going to face stiff profit-slurping requirements if and when cruise lines begin sailing again.
The near-term outlook isn't pretty, but it also justifies Norwegian Cruise Line's raising more money last month at the expense of shareholder dilution. With all apologies to Jaws, you're gonna need a bigger boat -- a lifeboat -- if you're going to navigate these treacherous waters.
There are worse things than having to wait a couple of more months to sail. Anything that gives the pandemic and the global recession time to heal is a good thing. Norwegian Cruise Line, Carnival, and Royal Caribbean can keep feeding the meter for the idle time until well into next year. However, sooner or later one of the big three players is going to have to draw a line in the sand that sticks. Someone's going to have to jump through the CDC hoops, because by the time March rolls around it will have been a year since the industry was generating any kind of meaningful revenue. The longer the lull the more this becomes about wooing back passengers than simply resuming operations. Cruise lines can't control the vaccination process, but right now the waters are too chilly for the one industry that they can manage.