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Why Carnival, Norwegian Cruise Line, and Royal Caribbean Stocks Sank Today

By Rich Smith – Updated Dec 15, 2021 at 5:04PM

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CEO comments fail to reassure the stock market.

What happened

Shares of cruise ship operator Carnival (CCL 0.11%) (CUK) sank on Wednesday morning, down 4.3% as of 11 a.m. ET, followed in swift succession by the stocks of rival cruise operators Royal Caribbean (RCL -1.46%) and Norwegian Cruise Line Holdings (NCLH -0.40%) -- down 3.9% and 4.4%, respectively.

Comments by Carnival CEO Arnold Donald in a Yahoo! Finance Live segment this morning appear to have sparked the sell-off -- but they're not the only thing going wrong with cruise stocks today.

Person poses on the deck of a cruise ship while wearing a face mask.

Image source: Getty Images.

So what

Donald told Yahoo! that Carnival still expects to have about half of its fleet sailing by the end of this year. With 87 ships spread across nine separate cruise brands, that implies perhaps around 44 ships in the water as the company enters into 2022.    

Furthermore, "a number of those ships are sailing at nearly full occupancy," said Donald, calling consumer demand for cruises "robust" and spending by travelers aboard ship "at an all time high." On ships sailing out of the U.S., he said that more than 95% of guests are vaccinated, all guests have tested negative for coronavirus within 48 hours prior to boarding, and the company conducts testing on board as well.

And it's working. Since Carnival resumed sailing in July, Donald says that "hundreds of thousands of guests" have sailed with the company, with only a few cases of COVID-19 detected and no significant incidents of coronavirus spreading on board.  

Now what

So far, so good. So long as what's true for Carnival remains true for Royal Caribbean and Norwegian Cruise Line as well (and it does), this all appears fine and dandy for the cruise industry. But here's the bad news:

Donald said he anticipates that protocols to fight the spread of COVID-19 will probably continue to be in place on Carnival cruises for the foreseeable future. "The sooner we learn to live with this and not have serious lasting impacts from people contracting the virus, the better off we're all going to be," said the CEO.

The problem with this, of course, is that it implies Carnival's business, and its profits, may remain constrained by coronavirus for some quarters to come. The more so now that we hear today that the U.S. Centers for Disease Control and Prevention has warned of a surge next month in cases of the omicron variant of COVID-19. "The implications of a big wave in January that could swamp hospitals ... we need to take that potential seriously," a federal health official told The Washington Post

On top of all this, the Federal Reserve this morning is meeting to decide when, and how fast, it should raise interest rates that will in turn raise the cost of Carnival servicing its $32.6 billion debt ... and Royal Caribbean its $21.6 billion debt ... and Norwegian Cruise its $13.1 billion debt.

The way things are shaping up, investors in all three of these cruise companies may have to "learn to live with" negative profits at their companies for some time to come.  

Rich Smith 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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