What happened

Shares of Royal Caribbean Cruises (RCL -4.37%) are running 14.6% higher this week compared to where they closed last Friday, according to data from S&P Global Market Intelligence, despite no company-specific news that would account for the jump.

In fact, there's been plenty of cruise industry news to suggest the exact opposite, especially around peer Carnival (CCL -7.09%), which continues to catch analyst downgrades and price target cuts after laying an earnings egg.

Wave crashing into boats prow.

Image source: Getty Images.

So what

The cruise ship industry was swamped by the rogue wave of Carnival's earnings report that essentially gave up all hope of returning to profitability this year as inflation and other costs took their toll on performance.

Royal Caribbean, Carnival, and Norwegian Cruise Lines all sank on the report, with Royal ending last week down 14.6% from where it began. That means its identical percentage gain this week isn't enough to put it at breakeven from two weeks ago, though it's doing better than either Carnival or Norwegian.

That could be because despite Royal Caribbean and Norwegian not reporting earnings for a few weeks yet, Royal Caribbean is actually better positioned than its rivals. As my colleague Dan Caplinger recently pointed out, the cruise ship operator didn't dilute its shareholders the way Carnival and Norwegian did in a bid to stay afloat. That means its earnings won't need to be quite as spectacular as its peers need to produce to show earnings improvement because it has fewer shares outstanding.

Now what

The cruise industry was first battered by the pandemic, and now it's facing rough seas due to the possibility the economy will suffer from stagflation or a declining economy that stills rising inflation. All signs also point to the Federal Reserve raising interest rates by 75 basis points for an unprecedented fourth time when they meet in November, which will raise costs for both consumers and for the cruise line stocks on the debt that they hold, which is significant.

While Carnival had said bookings for the 2023 cruise season were holding up better, running ahead of 2019 and at higher prices, credits it had to issue to passengers for pandemic-era cruise cancellations were hurting its performance in the back half of this year.

We need to see what sort of havoc all these different moving parts play when Royal Caribbean reports results, which may lead to more waves swamping its deck.