What happened
Ahoy there, matey! I think I spy a trend!
For four days running, shares of all the major American cruise line stocks have sailed higher and higher. With Norwegian Cruise Line Holdings (NCLH 3.05%) tacking on another 4.5% through 11:50 a.m. ET today, Carnival (CCL 0.75%) gaining 5.7%, and Royal Caribbean (RCL 2.14%) leading the pack higher with a 6.7% gain, cruise stocks are now up an average of more than 23% apiece over the last four trading days.
This is no coincidence.
NYSE: RCL
Key Data Points
So what
There are several factors providing fair winds and following seas to the cruise industry this week, starting with inflation rates that are rising, inflating cruise stock revenues and giving them more money with which to pay down the mammoth debt loads they accrued over the course of the pandemic. Additionally, despite the rapidly rising rates, the Federal Reserve has signaled that it won't be raising interest rates as steeply as many investors feared, making it (slightly) cheaper for cruise stocks to service their debts.
This is all good news for Norwegian Cruise, Carnival, and Royal Caribbean -- and it's not even the best news the industry received this week.
The best news, as my fellow Fool Travis Hoium pointed out yesterday, is that late Monday, the U.S. Centers for Disease Control and Prevention (CDC) announced that starting on July 18, its COVID-19 Program for Cruise Ships is no longer in effect. What this means for cruise companies is that while the CDC will continue to provide guidance to cruisers on how best to protect their passengers from COVID-19, it will no longer demand that they take any specific actions.
No more COVID-19 testing requirements before boarding. No more demands that passengers wear masks while on board cruise ships. The CDC says it's even giving up on keeping track of COVID-19 cases that are reported by passengers on cruise ships.
Now what
That's a whole lot of logistical barriers, and at least one psychological barrier, to folks signing up to take cruises that the CDC just removed. Although it's hard to estimate precisely how big of a boost it will give to the cruise business -- or if it's big enough to justify a series of 20%-plus stock price changes in a matter of days -- the fact that it's a plus for these stocks is undeniable.
And cruise stocks are in need of some good news right now.
With debt loads of $14.3 billion (Norwegian Cruise), $23.1 billion (Royal Caribbean), and $36.4 billion (Carnival), the 1.5 percentage points worth of rate hikes the Federal Reserve has already announced this year have already raised the likely cost of the industry servicing its debts by $1.1 billion so far this year. And with the Fed likely to raise rates by another 1.5% or so before the year is done, investors in this industry can expect costs to rise by another $1.1 billion in short order.
The longer this goes on, the harder it's going to be for cruise companies to overcome their debt costs and earn a profit. Getting more people to sign up for cruises is their best hope of meeting that challenge.
