This was finally the year that cruise lines began sailing en masse again, but the journey has been more Gilligan's Island than Love Boat. The three cruise stocks that held up surprisingly well in 2020 -- Carnival (CCL 3.57%), Royal Caribbean (RCL 3.55%), and Norwegian Cruise Line Holdings (NCLH 5.39%) -- have largely sputtered in 2021. The New Year is also already starting on the wrong foot with a new sea storm moving in as fresh COVID-19 case counts hit all-time highs.
The U.S. Centers for Disease Control and Prevention (CDC) issued a new warning on Thursday, urging even fully vaccinated people to avoid cruise travel. The agency's updated travel health notice points out that the COVID-19 virus spreads easily among folks in close quarters on cruise ships. The chances of catching the problematic virus are "very high" on ships, even for passengers who have completed the initial vaccination process along with additional booster shots.
It's not a very bon voyage. The hardest hit of the travel industries was hoping to end the year with an exclamation point. Instead we find ourselves heading into 2022 with another question mark.
Image source: Getty Images.
Rough waters
The new CDC update isn't as bad as things were earlier this year when ships weren't allowed to set sail at all from any U.S. port, but it's definitely still bad. It's taken a long time for the cruising industry to start up again in this country. Now Carnival, Royal Caribbean, and Norwegian are facing another wave of passenger cancellations and a potentially longer itinerary on the way to eventual profitability.
This wouldn't be a bad hurdle if the stocks had stuck the landing the first time around, but that wasn't the case. Cruise line stocks were market laggards in 2021 despite navigating the thorny obstacles to get going again this year:
- Carnival stock is down 5% in 2021 through Thursday's close.
- Norwegian Cruise Line Holdings is trading 17% lower this year.
- Royal Caribbean is bucking the trend with a 4% advance in 2021, but it's sorely lagging the market averages.
If 2021 was a bad year for cruise line investors -- despite the arrival of passengers on the gangplank -- it has to be hard to be optimistic about how 2022 will play out. All three major cruise lines saw their stocks suffer slides of 43% to 56% in 2020. They've also taken on new debt and bloated their share counts to stay afloat during the downtime.
Many cruise line buffs will sail anyway. The CDC's update is a suggestion and not a mandate. However, it doesn't mean that the experience itself is the same. Many ports of call are preventing ships with reported cases from making their planned itinerary stops. A lot of these islands could use the infusion of tourism dollars, but that doesn't outweigh the safety of the locals. Some cruising fans who don't have a problem accepting the COVID-19 risks inherent in a sailing may hold off if they know that destinations can be nixed during a trip.
Things don't have to end badly. We are seeing COVID-19 outbreaks on a lot of ships given the highly contagious nature of the omicron variant, but we're also generally seeing fewer passenger fatalities and prolonged recoveries. It's a sign that the safety protocols being carried out by the ships are working to a certain extent. There's also hope that this fifth surge for the virus could be closer to the COVID-19 finish line, but we've seen how past recovery predictions have fallen flat. Carnival, Royal Caribbean, and Norwegian head into 2022 with uncertainties and low expectations. If you're an investor, there are worse things than buying into cruise line stocks when there's blood in the water and expectations are low.
