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Disney Follows Carnival, Royal Caribbean, and Norwegian Into Open Waters

By Rick Munarriz - Jun 2, 2021 at 9:35AM

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Disney will resume sailing later this month with its first test cruise.

Over the past few days we've seen Carnival (CCL 1.71%) (CUK 1.56%), Royal Caribbean (RCL 1.56%), and Norwegian Cruise Line Holdings (NCLH 2.91%) announce plans to start sailing again this summer. It was just a matter of time before Disney (DIS 3.30%) got in on the ocean adventure.

The media giant with a modest fleet of four ships is gearing up to initiate test sailings out of Port Canaveral in Central Florida later this month. The first journey will reportedly take volunteer passengers on a two-day trek starting June 29. The Centers for Disease Control and Prevention is requiring cruise ships to conduct test sailings to make sure safety protocols are working before taking on revenue-generating guests. 

The other option for a clearer path to resume operations involves requiring 98% of the crew and 95% of the passengers of any sailing to be fully vaccinated. With Florida's governor prohibiting companies from asking for proof of vaccination records, cruise lines have to take the costlier and lengthier path of going through test cruises to win regulatory approval to get back to business. It's a start, even if time is running out to make the most of the peak summer travel season.

A themed dining room on a Disney cruise ship with sea life projected on the walls.

Image source: Disney Cruise Line.

When you wish upon a starboard 

Disney obviously doesn't need its cruise ships making money again the way Carnival, Royal Caribbean, and Norwegian Cruise Line do. Disney is a well-diversified entertainment giant. The $69.6 billion that it delivered in revenue in fiscal 2019 -- the last full year of operations before the pandemic -- is a lot more than the $38.3 billion in top-line results generated by the three leading cruise lines combined that year.

Cruise lines will never rival Disney's media networks, studio entertainment, and theme parks segments. However, Disney Cruise Line does move the needle for the House of Mouse. A Disney cruise is a premium-priced experience for families with the means to pay more than they would for a comparable sailing on a Carnival ship. Disney ships are also richly themed with the intellectual properties that make it the undisputed top dog in family entertainment. In short, the cruise ships are another way for the media mogul to extend its brand and franchises. 

Disney's cruise business will also grow faster than the three larger players. Disney Wish will be its fleet's fifth ship, and began booking sailings last month for voyages starting next year. Two more ships -- initially expected to start sailing by 2023 -- have seen their debuts pushed out to 2024 and 2025. 

Right now it's probably a good thing that cruise ships are not a primary business for Disney. Carnival, Royal Caribbean, and Norwegian Cruise Line have been in the financial equivalent of being dry-docked for the past 15 months. Disney's fleet has also been out of businesses since mid-March of last year, but it's been firing on other cylinders including Disney+ and its media networks to generate revenue through the COVID-19 crisis. Disney returned to profitability two quarters ago. Carnival, Royal Caribbean, and Norwegian Cruise Line are at least a year away from getting out of the red, and that's if everything goes according to plan following this summer's test sailings. There's a reason why the cruise industry is widely regarded to be the final segment of the travel and tourism sector to get back on course after the pandemic. 

Disney didn't also have to bloat its enterprise value by issuing debt and new stock to stay afloat during the lull the way that the cruise lines did over the past year. Disney's test sailing later this month will still matter. Its dream of nearly doubling its fleet in the next four years needs a smooth start to its sailing resumption this summer. It's not too late for a fairy tale ending for the media icon that knows all about those fairy tale endings.

Rick Munarriz owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$121.57 (3.30%) $3.88
Carnival Corporation Stock Quote
Carnival Corporation
CCL
$10.72 (1.71%) $0.18
Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
RCL
$42.37 (1.56%) $0.65
Carnival Corporation Stock Quote
Carnival Corporation
CUK
$9.75 (1.56%) $0.15
Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
NCLH
$14.16 (2.91%) $0.40

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

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