Why Carnival, Royal Caribbean and Norwegian Cruise Line stocks all sank on Friday

What happened

Shares of cruise lines, which broadly appeared on Thursday without any particular news, ended the week on a lower note on Friday afternoon. At 2:50 p.m. EST, shares of Carnival (NYSE: CCL) (NYSE: CUK) and Royal Caribbean (NYSE: RCL) are both down 5.5%, and Norwegian Cruise Line Holdings (NYSE: NCLH) made the worst of all – down 6.4%.

And you guessed it: the coronavirus is to blame.

Image source: Getty Images.

So what

Everyone now knows all about COVID-19 and what it has done to the cruise industry. You’ve probably also heard of the UK variant of the coronavirus, a more virulent and possibly deadly mutation of the disease. But there is also a third mutation to be feared, B.1351, which was first identified in South Africa. As The Washington Post reports today, it is this latest variant that convinces the governments of Canada, Great Britain and Germany to introduce new travel bans on top of the restrictions already in place.

For a time, Europe was actually one of the few places in the world where cruise lines seemed willing to give cruise operations a chance to resume, but as new travel restrictions put in place instead, it seems more and more unlikely now. Moreover, even where categorical prohibitions are not considered, traveling becomes more and more difficult. In Canada, for example, there are discussions about mandatory testing and quarantine for all returning travelers. Here in the United States, Dr Anthony Fauci says that B.1351 is a “red flag” that makes the acceleration of the vaccination rate even more important.

Now what

What impact does this have on cruise line equity investors in particular? Well, the new travel bans obviously aren’t good news for any company in the cruise industry. But even restrictions other than a ban could be a problem.

Last week, UK-based Saga Cruises announced that even after the cruise resumes, all passengers will need to be able to show proof of vaccination before they can board. “The majority of our customers are in the at-risk age group,” Saga explained, “and our priority is their safety and well-being.”

Now Saga is just a small operator – two ships in its fleet – so where it sails other larger cruise lines may not follow. But last month, the larger Norwegian Cruise said it was also considering requiring passengers to show proof of inoculation. The Publish Also reports that Carnival and Royal Caribbean are taking a wait-and-see approach – not yet requiring mandatory vaccinations, but not excluding it either.

On the one hand, requiring vaccinations seems prudent both to contain the spread of the pandemic and to reassure customers that it is safe to hit the road again. On the other hand, getting everyone vaccinated will take time. And the longer it takes, the longer cruise lines will have to wait to resume cruising – and the more money they will spend while waiting.