Having fallen more than 86% from its peak in 2018, cruise line company Carnival Corporation (CCL 0.13%) has endured a difficult couple of years along with the rest of the travel industry as a result of the pandemic. However, easing COVID-19 restrictions combined with pent-up travel demand could provide just the boost this cruise line stock needs.

A leader in cruising

Picking up 37.1% of all cruise revenue last year, Carnival Corporation leads the industry in market share. Carnival also carried over 42% of all cruise passengers worldwide in 2021.

As a leader by both market share and passengers carried, Carnival can justify calling itself "The World's Most Popular Cruise Line." The company operates Carnival Cruise Lines, Princess Cruises, Holland America Line, Cunard Line, Seabourn, and others.

Carnival stock's performance is reflective of the industry as a whole and as the company's position as the industry leader. Prior to the global pandemic, cruise industry growth was clicking along at a rate of 6.8% per year. Carnival's closest competitors are Royal Caribbean Group and Norwegian Cruise Line.

Cruise ship cruising along a river in Europe.

Image source: Carnival Corporation.

Prevailing headwinds and opportunities

COVID-19 was a major blow to the cruise industry in particular with passenger volume initially plunging 80%. Customers willing to cruise during the pandemic were subject to stringent vaccination and mask requirements, which didn't help repeat business. To make matters worse, fears of being trapped for weeks on a quarantined cruise ship weighed heavily on demand. Many would-be travelers couldn't see themselves booking a cruise during this time.

As a result, companies in the industry incurred a tidal wave of debt. At the end of the second quarter, Carnival's debt totaled $35.1 billion. The company must now weigh how quickly it can pay down this debt as demand for cruising picks up.

Fuel prices and inflation also loom large for Carnival, which add to the company's operating costs along with the increased expense of upholding strict health and safety protocols. To combat high fuel prices, Carnival has focused on optimizing its fuel consumption with more efficient fleets.

Amidst all of these headwinds, Carnival also must contend with the negative impact its ships have on the environment. The U.S. Department of Justice has fined Princess Cruises more than $60 million since 2017 for violating environmental regulations. Long term, Carnival has committed to halving its emissions by 2030 with a net-zero emission goal by 2050.

Positive currents

Despite its challenges, Carnival has made recent strides with second-quarter revenue up almost 50% from the previous quarter. Cruise occupancy rose from 54% to 69% in the same period.

The company also restarted 20 ships in second quarter. In late June, CFO David Bernstein noted that 91% of the company's fleet was operational. And demand for Carnival's cruise offerings in the latter half of 2022 has been remarkably high, at levels which outpace even 2019 bookings. Due to this "tremendous pent-up demand," as CEO Arnold Donald describes it, the company saw almost twice the bookings in the second quarter as it did in the first.

And with cash from operations now turning positive, Carnival seems to have changed course in the right direction. With its more efficient and streamlined fleet, nearly a quarter of it being brand new ships, the company forecasts a return to profitability along with a return on its fleet-improving investments.

A notable tailwind for the cruise industry came last month when the CDC stopped tracking COVID-19 cases on cruise ships. As a result, Carnival began loosening its COVID-19 procedures, dropping its pre-vaccine requirement and pre-cruise testing for vaccinated guests on most voyages.

Valued at $7.3 billion last year, the cruise industry is forecasted to reach $15 billion by 2028. With recovery on the horizon, it might be time to load the boat on Carnival stock.