Cruise line investors get on the wrong ships

Norwegian Cruise Line Holdings is doubling its security this year. Wall Street took the money on this bet.

The cruise line said last week it was expanding its guest vaccination requirement, which was due to expire at the end of October, for all its crossings until the end of the year. Since children under 12 cannot currently receive a Covid-19 vaccine, Norwegian policy means these children are not allowed on its ships at this time.

Fears that the Delta variant could hamper the long-awaited recovery by cruise lines have recently weighed on the industry. But Norwegian stock has been particularly underperforming this year, falling more than 7%, while shares of Carnival Corp. and Royal Caribbean Group registered slight gains during this period.

Investors can be on the wrong side of this trade for several reasons. On the one hand, Norwegian passengers are generally older, which makes it less relevant that young children cannot yet be vaccinated. On the other hand, Norwegian’s brands are more upscale than those of its peers.

Luxury matters right now. Based on his conversations with major travel agencies, Truist Securities analyst Patrick Scholes said in a July memo that recent bookings for 2022 were significantly up from those made two years earlier for markets that favor high-priced cruises like Alaska, Europe and the Mediterranean. Meanwhile, its channel checks showed that bookings for more mainstream cruises, like those to the Caribbean, fell 25% over the same period.