Things are starting to get difficult again for the cruise line operators. This could've been a good week for the industry, as Royal Caribbean (RCL 0.90%) successfully raised money to push out upcoming debt maturities. However, COVID-19 outbreaks on ships operated by all three of the leading players and a problematic guidance update from the U.S. Centers for Disease Control and Prevention (CDC) have made it a rough start to 2022 for the cruise lines.
It's now been nearly 22 months since the cruise lines had to shut down as the COVID-19 crisis became a global calamity. U.S.-based sailings began to gradually start up again this past summer, but the recovery process has been slow. Analysts see Royal Caribbean returning to profitability later this year -- with Carnival (CCL -0.10%) and Norwegian Cruise Line Holdings (NCLH 1.36%) following next year -- but we've seen how those forecasts can be disrupted before.
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The good, the bad, and the ugly
We may as well start with the upbeat news. Royal Caribbean announced on Tuesday afternoon that it had priced a private offering of $1 billion through senior unsecured notes due 2027 at 5.375%. It was initially looking to raise just $700 million at a slightly higher interest rate. The new infusion may not seem like much to a company with more than $21 billion in debt, but it will help the world's second-largest cruise line tackle costlier debt that matures later this year.
Now we can turn to Tuesday's bad news. Norwegian's Pearl is heading back to its Miami port -- just a day after leaving for an 11-day cruise -- after dozens of crew members came down with the COVID-19 virus. All crew and passengers on the ship are vaccinated, but given the highly contagious nature of the omicron variant, it isn't a surprise that it could spread quickly in tight crew chambers.
Royal Caribbean and Carnival have also had vessel-specific outbreaks, but often the cruise goes on with those impacted simply either quarantining in their cabins or being flown out if symptoms get worse. Until now, the cruise ships have fared refreshingly well on the pandemic front since the summertime restart. Royal Caribbean revealed last week that of the 1.1 million passengers it has taken on since June, just 1,745 have tested positive for COVID-19. Only 41 of those eventually needed hospitalization.
The problem is that sentiment is shifting as case counts surge worldwide. The CDC issued a new travel health notice last week, suggesting that even fully vaccinated people steer clear of cruise ship getaways for the time being. It's a suggestion and not a mandate, but the situation this week on Norwegian Cruise Line's ship bears watching. Last month we saw some ports of call deny entry to ships if there were COVID-19 cases on board, but this time the cruise ship is returning early. Unlike an incident on Royal Caribbean's Symphony of the Seas two weeks ago, where future sailings weren't impacted, it remains to be seen if Pearl will be able to make its next scheduled voyage given the disruption with the crew.
The long-term outlook for cruise line stocks remains strong. Question marks remain in the near term, and the longer the problematic headlines continue, the harder it will be to restore consumer faith in the product. Those seas are rough, but they won't always be that way.
