Carnival Corporation saw its share prices plummet by as much as 80% at the end of 2019 as the world struggled to respond to the global pandemic. With ships stuck in port and cleaning procedures underway, the cruise operator continued to focus on a series of improvements launched before the pandemic transformed markets.

These changes could help right the proverbial ship and return Carnival to smooth sailing.

Carnival searches for smooth seas

The obvious loss of revenue during the early pandemic days had lasting repercussions, as major cruise lines provided each passenger unable to travel with credit vouchers toward future voyages. These vouchers continue to reduce profitability on each cruise, but they represent a finite cost likely to diminish quickly over time.

Similarly, cruise lines have now absorbed much of the costs of cleaning, certifying, and modifying vessels to meet the new challenges of vacationing created by the pandemic.

Carnival's 2016 energy-efficiency improvements helped drive its continued profitability in the years leading to the pandemic plunge, and the company invested $350 million to further hedge rising fuel prices and reduce overall consumption.

The cruise line also announced in September that pandemic boarding requirements ended in most markets. Between these changes and the dwindling number of credit vouchers remaining, it appears much of the immediate drain on Carnival's profitability from the outbreak has passed.

Turning things around at home

Carnival's Service Power Packages rollout, first announced in August, provides one of the latest sets of initiatives designed to reduce costs. By installing and enabling these upgrades across its fleet, Carnival hopes to reduce fuel costs and cut greenhouse gas emissions.

The Service Power Packages include upgrades to HVAC systems for greater efficiency and a move to LED lighting systems. Technical changes and remote monitoring should enhance overall results and deliver a return on investments. Carnival expects this rollout period to occur over the next five years, with fuel consumption rates on vessels dropping by as much as 10% by 2023.

Beyond cutting energy costs, which remain a major factor in cruise profitability, more recent initiatives include the push to return full capacity to guest services. Lines now operate at 95% capacity, per Carnival's September earnings report. New bookings continue apace, and Carnival's most recent quarter saw a return to $4.8 billion in deposits for future sailing, rapidly closing on the $4.9 billion in place during the same quarter of 2019.

Never try to catch a falling knife

Conventional wisdom holds that any stock that sees a major plummet like Carnival's should be viewed with utmost caution. Carnival's recovery includes many initiatives that were already underway prior to the pandemic, but these costs may have slowed its recovery after revenue dried up. While Carnival continues to show some strength, and a rebound may well be around the corner, the company has yet to catch up in its primary markets.

Competitor Royal Caribbean Group, for example, offers a strong alternative and a greater likelihood of sustained profitability more quickly than Carnival.

Royal Caribbean predicts a move to positive earnings per share this year versus Carnival's 2023 expectation. Royal Caribbean's share prices, currently sitting around $48 versus Carnival's $8, have taken less of a hit this year. Market patience with cruise-line recovery seems lacking, indicating lowered confidence in the short-term return to profitability. But that smaller hit also means less upside for those looking to invest.

Cruises seem ready for a comeback

The cruise market remains in a period of growth and recovery. Grand View Research estimates cruise revenue may nearly double from the current $7.67 billion to more than $15 billion by 2028. That represents a lot of potential for cruise leaders. Investors seeking proven cruise line stocks with plenty of upside likely see the promise in Carnival.

With trip deposits nearing 2019 levels, profitability may well follow. Carnival's stock's price at that time came in six times greater than today's price, showing that this company can deliver. Carnival stock does not appear to be a falling knife, but it may instead offer a rare opportunity for those who seek to buy and hold.