Markets
RCL

Why Carnival, Royal Caribbean, and Norwegian Cruise Line Stocks Dropped Again on Friday

What happened

For the second day in a row, shares of major cruise line stocks Norwegian Cruise Line Holdings (NYSE: NCLH), Carnival (NYSE: CCL) (NYSE: CUK), and Royal Caribbean (NYSE: RCL) are falling on Friday, down 7.1%, 6.7%, and 5.8%, respectively, at 1:34 p.m. EDT today.

Cruise ship at sea

Image source: Getty Images.

So what

There are no obvious catalysts behind today's declines, unless you count the announcement by Carnival subsidiary P&O Cruises Thursday morning that it was extending its pause in cruising through January 2021.  

But popular travel industry analyst ThePointsGuy.com did raise a worrisome issue on Thursday when it noted that around the globe, a total of nine cruise lines have resumed at least limited sailings, none of which is Carnival, Royal Caribbean, or Norwegian. These three major cruise lines have canceled pretty much all their cruises through early November.

Now what

But not all the news is bad. At least one of the nine cruise lines that has resumed operations in Europe, Costa, is a subsidiary of Carnival. Another, Germany's TUI Cruises, is partly owned by Royal Caribbean, according to data from S&P Global Market Intelligence. These lines starting back up should provide at least a trickle of revenue to their parent companies.

Even more important than a near-term, sputtering revival in cruising activity are the long-term implications of Carnival's decision to retire or dispose of 18 of its own cruise ships. By reducing capacity in the industry, Carnival is helping to ensure that the cruise lines that do survive this current recession will emerge with their pricing power intact.

As Cruise Industry News noted on Thursday, these 18 ships were already overdue for removal. Smaller and older than the average cruise ship on the seas today, the vessels in question are calculated to have accounted for only 3% of Carnival's operating income in 2019 but incurred 12% of its operating costs. Getting them out of the fleet, therefore, won't just help avert a price war once the world resumes cruising in earnest. It will help ensure that Carnival is as profitable as it can be, once that happy day arrives.

10 stocks we like better than Carnival
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Carnival wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of August 1, 2020

 

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

RCL CCL CUK NCLH

Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More