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Why Cruise Line Stocks Jumped on Tuesday

By Travis Hoium - Updated May 25, 2021 at 2:25PM

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Shares of cruise operators are up today but have a lot to prove in 2021.

What happened 

Cruise line stocks rose on Tuesday after at least two companies submitted plans to resume more-normal operations. More than 14 months after the pandemic shut down cruise lines, operators are planning to return to some level of normalcy. 

Norwegian Cruise Line Holdings (NCLH -11.86%) led the way by climbing 6.3% at its peak, while Carnival (CCL -6.68%) (CUK -6.80%) jumped as much as 5.3%, and Royal Caribbean (RCL -6.19%) was up 5.5%. The stocks were up 3.5%, 2.9%, and 4%, respectively, at 2:15 p.m. EDT today. 

A cruise ship near a sandy beach.

Image source: Getty Images.

So what

The biggest news was that Norwegian Cruise Line and Royal Caribbean both submitted plans to resume voyages outside of Florida. Norwegian Cruise Line plans a Seattle-to-Alaska voyage and Royal Caribbean is aiming for test cruises. Along with Carnival, they expect these early cruises to be with fully vaccinated passengers and staff. 

Florida law prevents businesses from requiring a vaccine, so some cruise lines may begin operations in other locations. Given the popularity of Alaska cruises in the summer months, this is a natural place to start. The Centers for Disease Control and Prevention (CDC) does have final say over the plans, but we should know in the next week whether early voyage plans are approved. 

Now what

Taking steps to return to normal is good for the cruise line industry, but investors should keep in mind that positive news is already priced into these stocks. You can see below that share prices may be down over the past year, but a combination of stock sales and debt offerings have left all three cruise line operators with a higher enterprise value than they had two years ago. 

NCLH Chart

NCLH data by YCharts.

It's not entirely clear that the industry will quickly return to the same level of profitability as it had two years ago, so these stocks might have gotten ahead of themselves. Not only could demand for cruise tickets potentially be down, but the supply of vessels is also down from these companies as operators have sold off older vessels over the past year. This was an effort to save costs, but it could reduce upside in the future. 

Early indications are that demand will be strong for cruise lines when voyages return, but the road to recovery might be longer than investors hope. Some passengers will be cautious returning to the sea, and with capacity down, these companies might not be able to raise prices high enough to offset the loss of capacity. Shares may be swinging higher today, but I would be cautious betting on a long-term recovery in this embattled consumer discretionary industry

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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Stocks Mentioned

Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
$37.74 (-6.19%) $-2.49
Carnival Corporation Stock Quote
Carnival Corporation
$9.34 (-6.68%) $0.67
Carnival Corporation Stock Quote
Carnival Corporation
$8.50 (-6.80%) $0.62
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
$11.93 (-11.86%) $-1.60

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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