Why cruise line stocks jumped on Monday
Cruise line stocks had a strong start to the week as the sector climbed high in trading on Monday. Actions of Carnival (NYSE: CCL) (NYSE: CUK) increased by 7.7%, Royal Caribbean (NYSE: RCL) increased by 5%, and Norwegian Cruise Line Holdings (NYSE: NCLH) rose 4.8% at its peak. At the close of trading, stocks were up 3.9%, 1.9% and 0.8% respectively.
The jump in stocks was impressive given that the market as a whole was stable and the main driver was oil (an expense for cruise lines), up 1.9%. But cruise line stocks were still on the rise, and there are several reasons.
Cruise line stocks have traded inversely with COVID-19 numbers in the United States since the start of the summer, and that’s part of the trend at the start of this week. Cases of COVID diagnosed in the United States started to increase in early summer, which pushed stocks down, then peaked earlier in September, just before stocks started to rise. It appears that the number of cases continues to decline at present.
There was also some news last week that gave a boost to cruise line stocks. One was Carnival’s third-quarter business update, which showed a loss of $ 2.8 billion for the quarter, but gave positive signs going forward. Management said booming volumes for the second half of 2022 are ahead of bookings at this point in 2019, potentially a positive sign for future demand.
In another sign that restrictions are easing, the United States will ease travel limits for air passengers from the United Kingdom and European Union countries in early November. Fully vaccinated passengers will be able to travel freely as long as they test negative for COVID within 72 hours of departure, and no quarantine will be required. This policy does not necessarily have a direct impact on cruise lines, but the easing of restrictions is certainly seen as a positive for the industry.
While there are positive signs regarding COVID in the United States and reasonably good data from the cruise industry, the situation remains difficult. As part of its post last week, Carnival said it spent $ 510 million per month in the third quarter of 2021, showing how expensive it is to operate a cruise line that is still not at full capacity. .
The future of the cruise industry really depends on when customers are comfortable traveling in larger numbers. Carnival said it was only running around 35% capacity at the end of August, so there is plenty of room for improvement. But management also expects to be only at 75% of capacity by June 2022, showing that there is a long recovery ahead.
Considering the high cost of owning and operating cruise ships, this is an industry I will stay away from. Cruise stocks may have recovered well from the depth of the recession, but the business is still in shambles and will be for the foreseeable future. Today’s pop is nice based on the positive industry feedback, but the reality is that the fundamentals are still very weak, and until that changes I will stay out of company stocks. cruise.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.