The cruise ship industry continues to take a much bigger hit than most other businesses during the COVID-19 pandemic. It remains shut down while virtually every other industry has reopened. 

Although operators have raised substantial amounts of money through debt and equity offerings to stay afloat, the U.S. Centers for Disease Control conditional-sail order staying in effect until at least November could cause them even more severe financial consequences.

Norwegian Cruise Lines (NYSE:NCLH), however, has asked the CDC if it can declare its independence and begin sailing again on July 4, so let's see if that makes its stock a buy.

Norwegian Pearl cruise ship

Image source: Norwegian Cruise Line.

Which way the wind is blowing

The CDC has issued conflicting guidance on travel. On the one hand it is maintaining its conditional sailing order until November, but also said there's no reason why people can't travel if they've been vaccinated so long as they wear a mask and social distance.

While the state of Florida is suing the CDC over its "arbitrary and capricious" cruise directive, Norwegian is seizing on the agency's broader travel industry guidance by saying it will mandate all of its crew and passengers be vaccinated before they will be allowed on its ships, and will implement other robust health and safety protocols, including universal COVID-19 testing. 

It will also sail at a reduced capacity of just 60%, but will steadily increase it by 20% every month thereafter until it is at full capacity once more. As the smallest fleet of the major cruise line operators with just 28 ships, it ought to be able to negotiate cruise bookings with greater ease than its rivals.

Having submitted its plan to the CDC for approval, it requested the agency lift its conditional sailing order on Norwegian vessels because it "trusts and is optimistic the CDC will agree that mandatory vaccination requirements eliminate the need for" it.

Norwegian is also moving forward with sailing from other ports of call outside the U.S. It announced voyages to the Greek Isles departing from Athens will also commence in July, while voyages to the Caribbean from ports in Jamaica and the Dominican Republic will begin in August.

Still facing stormy seas

The cruise operator, though, is now deeply in debt. As of the end of 2020, it had some $11.8 billion in total debt on its books, and $3.3 billion in cash and equivalents.

In just the fourth quarter it had to raise $824 million through equity offerings and issued $850 million in debt. It followed that up with another stock sale in March, issuing over 47 million shares, though the proceeds were being used to repurchase $400 million worth of debt.

While that may have been a smart financial move, it also means existing shareholders have seen their ownership stake diluted once again. It was also possible because Norwegian's stock price had soared to $34 a share and was up 50% in just one month at the time. A lot of the hope on a return to sailing has already been baked into its stock, and those of its peers Carnival and Royal Caribbean.

The market may be betting on a full recovery occurring much too soon.

Recovery still on a distant horizon

There is plenty of demand for voyages, and last month Norwegian said its Oceania Cruise brand notched a record by booking the most voyages in a single day in the company's 18-year history.

Yet the industry won't have normalized by the end of the year, and not next year or even the year after. Some analysts say it may take cruise operators until 2030 to fully recover.

In that time Norwegian, Carnival, and Royal Caribbean will be working to pay down debt in an environment that may find passengers reluctant to pay up as readily as they used to. Their financials will certainly be strained, and the dividends they paid will remain suspended for some time to come. It may also be a long while before they're able to reverse the dilution they inflicted on shareholders through buybacks.

Norwegian Cruise Line's stock is up 20% in 2021, and over 160% from where it traded a year ago. The good news seems priced in, which makes recommending its stock difficult to do.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.