What happened

June was a brutal month for Carnival (CCL 0.64%), Royal Caribbean (RCL 2.00%), and Norwegian Cruise Lines (NCLH 0.11%). The companies' shares fell by 37.7%, 39.9%, and 30.5%, respectively, according to data from S&P Global Market Intelligence.

Admittedly, it was a difficult month for stocks in general. Early on, it featured a worse-than-expected inflation report. Then, recession fears intensified after the Federal Reserve hiked its benchmark federal funds rate by 75 basis points as part of its effort to get inflation back in check. However, amid a falling market, economically sensitive stocks such as cyclicals and consumer discretionary names took the biggest hits. As part of the discretionary group, cruise lines did even worse, as they will need a strong economy just to dig themselves out from under the massive piles of high-interest-rate debt they incurred to survive the earlier phases of the pandemic.

While Carnival reported improving revenue, bookings, and occupancy during the month, it wasn't enough to offset investors' broader macroeconomic fears.

So what

In its fiscal second-quarter report, Carnival showed strong growth compared with its fiscal first quarter, but still came up short of analysts' expectations. Revenue grew 50% sequentially as more ships came into service, and occupancy increased from 54% to 69%. Also encouraging was the fact that bookings for future cruises doubled from fiscal Q1 to fiscal Q2, reflecting strong demand.

Still, customer deposits for future cruises can be withdrawn and the reservations canceled, albeit at some cost. That's the scenario feared by analysts at Morgan Stanley, who slashed their price target on Carnival to $7 amid broader macroeconomic concerns. And if a worst-case bad recession happens, Morgan Stanley believes Carnival could be worth zero.

After the delta and omicron COVID-19 variants interrupted the cruise industry's hoped-for recovery last year, these three companies will need full ships operating at 100% of pre-pandemic levels for years just to whittle down their massive debt positions. Even as it experienced strong revenue growth in its fiscal Q2 quarter, Carnival still lost $1.8 billion on the bottom line. Meanwhile, its debt load is up to more than $35 billion against $7.2 billion in cash, $5 billion of which is in the form of customer deposits. Royal Caribbean and Norwegian are in generally the same situation -- still reporting big losses, but with the prospect of improvements as the world reopens.

In that vein, a troubling report from Bank of America Global Research in June uncovered some pricing softness in tickets for future cruises compared with May. The researchers noted that for all three of the major cruise operators, ticket prices fell by between 1% and 3% from May to June for cruises extending through 2024. That could reflect consumers becoming more price sensitive amid inflation, as well as ongoing capacity increases as operators bring more ships back to service. And with those companies facing higher costs for food, fuel, and labor, their futures are far less clear than they seemed at the beginning of June.

Now what

Cruise line stocks are down spectacularly from their pre-pandemic levels. However, they still aren't safe buys even at these low share prices. Between their large debt loads and the way inflation is eating into consumer budgets, there are just too many things that can go wrong for these companies.

If the U.S. avoids a recession and fuel and food prices come down, these stocks could rally in a big way. However, over the long term, the cruise lines will need several years of strong performances just to dig themselves out from under their high-interest debt loads. With so much macroeconomic uncertainty, those strong performances are anything but guaranteed. While cruises may often be terrific experiences, these stocks are still too risky to buy today.