Cruise Stocks Party on False Hope
Investors who cheered the end of the CDC’s Covid-19 program for cruise ships could find their money lost at sea
By Laura Forman
Royal Caribbean said it is awaiting the recommendations from the CDC that should be published in the next few days so that it can review them./ PHOTO: JON NAZCA/REUTERSIt is as if cruise lines’ parents just left town and now everyone expects a giant house party to erupt at sea.
Investors might want to hold off on tapping the keg.
Cruise stocks have jumped an average of 18% this week after the Centers for Disease Control and Prevention said as of Monday it had ended its Covid-19 program for cruise ships, allowing cruise lines to set their own policies regarding vaccination, testing and other requirements.
It has also stopped reporting ships’ caseloads, which it had been tracking online in a color-coded table based on severity available to the public.
Certainly the news this week is “a nice headline in an industry starved for nice headlines,” as Truist analyst Patrick Scholes put it.
But it might not translate into much of a financial boost.
The vast majority of cruisers haven’t seemed too concerned about caseloads to begin with.
Back in late December the CDC told Americans to avoid cruising, regardless of vaccination status.
And yet, Similarweb data show fewer than 17,000 visits to the CDC’s website that tracked ships’ Covid status in January, for example, even as Carnival, CCL 7.05%▲ Royal Caribbean RCL 7.15%▲ and Norwegian Cruise Line Holdings collectively NCLH 4.75%▲ logged nearly 22 million desktop and mobile visits that month.
The CDC said it would still be providing guidance for cruise ships’ handling of Covid cases but that companies can now use their own strategies to mitigate the spread.
As of Wednesday afternoon, neither Royal Caribbean nor Carnival had announced any material changes to their policies.
Some investors seem hopeful that the removal of blanket CDC requirements will mean more passengers will sail—families with kids, for example, who initially couldn’t or more recently whose parents didn’t want them to be vaccinated.
More passengers would be better for money-losing cruise lines targeting a return to profitability this year, but that won’t necessarily be the case: Royal Caribbean, for instance, already isn’t requiring guests under the age of 12 to be vaccinated to board its ships sailing from domestic ports.
Its guests under age 2 don’t even need to be tested before boarding.
The CDC had already been gradually easing cruise-line restrictions this year, and occupancy limits have been relaxed for some time now.
Wall Street is forecasting occupancy rates for Carnival and Royal Caribbean to exceed 95% by the end of this calendar year.
As of early May, only 90% of passengers had to be fully vaccinated for a ship to be considered “highly vaccinated” by the CDC—a threshold that didn’t apply to passengers under 5 years of age.
That isn’t very different from the general U.S. vaccination rate: As of July 11, about 79% of Americans had received at least one dose of a Covid-19 vaccine, according to the CDC, including over 83% of Americans age 5 or older.
Fewer mandates might help to lower cruise lines’ costs, but probably not by much.
In a statement, Royal Caribbean said it is awaiting the recommendations from the CDC that should be published in the next few days so that it can review them.
The company said any policy changes regarding Covid moving forward would be done with the safety and security of its guests as top-of-mind.
Guests who paid for a cruise and took time off work are understandably reluctant to cancel a trip they have already paid for because they got sick at the last minute.
But, without testing requirements, cruise lines risk some of those sick passengers coming aboard.
Cruise ships probably can’t afford to waive all their Covid policies, no matter their passengers’ preferences, lest they become sailing petri dishes the CDC will have to come back to re-regulate.
When the CDC dropped its health warning for consumers regarding cruises in March, cruise lines’ shares were little changed and Carnival’s stock actually traded down the day of the announcement.
That reaction seemed more appropriate.
Regardless of what the CDC is or isn’t mandating, underlying risks to the industry haven’t changed.
Cruise companies are carrying boatloads of new debt taken out over the past two years to make ends meet, and analysts expect their debt-to-income ratios will remain well above prepandemic levels even next year.
Meanwhile, pricing in some cases has come down due to capacity increases as cruise lines scramble to quickly add more passengers to near-term voyages.
Regulations were less of an anchor for cruise lines’ share prices this year than investors believed.
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