Why carnival is up almost 9% on Wednesday (while Royal Caribbean and Norwegian are not far behind)

What happened

Actions of a besieged leisure cruise line Carnival (NYSE: CCL) (NYSE: CUK) are up 8.8% as of noon today, following an equally large move made yesterday. Peers and rivals Royal Caribbean (NYSE: RCL) and Norwegian Cruise Line Holdings (NYSE: NCLH) see their stocks jump as well, although not quite so much. However, the entire uptrend comes from the same root. In other words, Carnival is finally seeing a light at the end of the pandemic tunnel, anticipating a return to more normal operations by the end of this year.

So what

COVID-19 has made it difficult for most businesses that deal with consumers, but has brutalized the cruise industry outright. Forced to cancel cruises altogether during the first days of the pandemic, then operating within severe limits as the number of vaccinations surged from late last year, Carnival and other cruise lines remain in the Red.

Pleasure travel, however, is on the mend.

In June, for the first time in over a year, Royal Caribbean left the United States. Norwegian is not far behind, announcing in June that it would also reinstate departures from the United States this month. On Monday, Carnival announced that it will operate five ships from the United States by the end of July, with plans to add three more to its active fleet in September, and then four more in October.

Image source: Getty Images.

Carnival raised the bar on Tuesday, however, announcing that it believed its entire fleet of Carnival-branded vessels would sail again before the end of the year, allowing the company to operate at 75% of its total capacity. reception. Taking into account its cruise lines that do not operate under the Carnival name, the organization estimates that it will be able to operate at 65% of its total capacity by the end of 2021. It is the first major cruise name to offer not only such a daring perspective, but also a specific and visible one. Investors are responding.

Now what

Potential shareholders should keep in mind that the shares of all of these aforementioned leisure cruise names fell dramatically in June and the first half of July, as the delta variant of COVID-19 renewed the spread of the pandemic. In total, Carnival stock fell 37% from its early June high through Monday’s close, creating at least part of the stock’s 14% gain between Tuesday and today. Don’t be too impressed with the size of the bullish bump.

Still, it’s hard to ignore that even with decided optimism this week, most of the recent pullback has yet to be recouped at a time when the industry looks as promising as it has been since. more than a year.

However, don’t confuse promise with profitability. Restarting shelved operations can take a long time and is neither cheap nor easy. There can be no assurance that Carnival and its peers will be able to make a profit by operating at capacities not close to 100%. It also needs to be questioned whether the labor shortage hindering a full reopening of land-based businesses will also be an issue on board ships, where it is more difficult to avoid exposure to potentially infected people.

From a risk versus reward perspective, however, Carnival, Royal Caribbean, and Norwegian Cruise Line Holdings all have something to offer new investors. This is short-term progress towards a return to long-term profitability, which is often enough to get – and maintain – action moving in a bullish direction.

To that end, in its outlook for 2021, the Cruise Lines International Association notes that 2 out of 3 regular cruise passengers are ready to sail within a year, while nearly three-quarters say they are likely to board a ship. ‘a boat in a few years. . Perhaps the most promising finding from the CLIA is that 58% of international travelers who have never taken a cruise before are likely to do so in the same “next few years”. On a related note, Carnival reported earlier this year that bookings for the first half of 2022 were already above comparable booking levels in 2019, confirming that people are indeed ready to travel. It’s just a matter of when, which is largely a matter of putting the pandemic in the rearview mirror.

In the meantime, cruise stocks offer attractive (albeit speculative) investment prospects.