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The Big Cruise Lines – Are They A Buy Yet? (CCL, RCL, NCLH)

With the exception of possibly the airlines, the cruise line industry has suffered more than any other from the breakout of the coronavirus in 2020. Publicity wise the pandemic has caused as much bad press for the sector than when a freshly minted ship called the Titanic bumped into a slab of frozen water way back in 1912.

And it is probably fair enough considering the floating petri dishes helped spread the virus around the world like nobody’s business. Who can forget the sight of countless cruise ships, such as the Diamond Princess in China and the Ruby Princess in Australia docked offshore, floating aimlessly with nowhere to go (except when Peter Dutton gets involved of course) with thousands of sickly passengers stuck on board.

Unfortunately, the systems and processes around cruising leave it open to the spread of such contagious diseases. You’ve got passengers and crew members coming on and off board from all parts of the world, mixing together in dining rooms, spa, pools, cinemas, and lining up at buffet tables. The problem can become so rampant that cruise companies have stringent protocols in place to deal with such outbreaks. Not that it helped much when something with the severity of Covid19 hit the waves. It was a recipe for disaster.

The industry, for the most part, has been shut down for more than six months now. In the US the Centers for Disease Control and Prevention (the CDC) have continually pushed back the timeline for cruise lines to safely embark into open waters again. And at their latest meeting held late last week, they set a new date (ominously) of Halloween, on the 31st of October. But who’s to say this date won’t be pushed back yet again? The cruise ships certainly think it will. They aren’t booking trips until December at the earliest. And it’s little wonder when case numbers continue to rise around most of the globe and in the US itself.

Disturbingly for the major cruise lines companies, when they are not sailing they are burning through cash. Many cruise-goers book there trips well in advance – months and years ahead. And since the shutdowns began the big players have been trying to convince passengers to resist requesting refunds and instead take a credit for future trips or rebook later in 2020 or into 2021. As the crisis continues, however, it gets harder and harder to continually ask for passengers to rebook. Countless have already done so many times over and are starting to ask for their money back.

The situation is becoming bleak and the share price record of the big players still reflects this. While the vast majority of the market has fought its way back to be in positive territory the cruise lines are still languishing far behind. The best performer so far has been Royal Cruise Lines (RCL) who started the year at $130.44 per share, hit lows of $27.66 in March, before fighting back to be sitting at $68.02 at the time of writing. That’s still 47.85% below where it started the year.

Its competitors have fared much worse. Carnival Cruise Lines (CCL) for instance started the year at $48.53, dropped to lows of $11.30 as the shutdowns began, and has only managed to climb back a couple of dollars to $15.99. That’s a loss of 67.05% from the start of the year. Norwegian Cruise Lines (NCLH) is slightly worse. It started the year at $56.97, hit a bottom of $10.03, and only now has risen back to a 68.38% loss of $18.01.

So at these almost rock bottom prices should you be wading back into the water on Cruise companies or is the storm still raging on?

There’s nothing I like better than doing a bit of bottom fishing. And the cruise lines certainly qualify. But we need to make sure they will be healthy long term before we put our hard-earned money into them.

The chances of recovery are seemingly strong. Cruise passengers are a loyal bunch. They love the food, entertainment, activities, food, day trips, convenience, food, and the lifestyle that other holidays can’t provide. All of the big cruise lines have reported that bookings for 2021 are in line with historical bookings from previous years. Despite the dangers, the demand is obviously still there. All that needs to happen is to get the ships back on the water.

But when that will be remains an unknown at this stage. Analysts suggest that all three major players have enough cash to get through into 2021. But beyond that it is unknown. In recent years competition had pushed them all to invest billions of dollars in larger and more expensive ships, upgrading older models with all of the latest technology, and attempting to entice new clients with all sorts of new and costly to build attractions. It has left them somewhat vulnerable.

The other unknown is how long it will be before they can get back on the water. The virus continues to thrive in the US and Europe and shows no signs of abating. We keep hearing that a safe, universal vaccine is right around the corner, especially from governments trying to get re-elected, however, the scientists seem to think otherwise. Once the virus is deemed under control all cruise lines will still have to prove to the CDC that they have satisfactory plans and protocols in place before they are allowed to carry passengers again. When this will all occur is anyone’s guess. And who’s to say that once they get back onto the water that the same situation will force them to shut down again.

So sure, it’s a risky move to get long the cruise lines right now but the payoffs will be immense if they can manage to hold on. You’re basically betting on an end to the coronavirus pandemic, in one way or another, at some stage in the first half of 2021. Any longer than that and you may find that your investment doesn’t exist anymore or the share price will suffer further writedowns.

Royal Cruise Lines seems to be your best bet for its healthier cash balance and its stronger reputation. Although the payoff won’t be as high as the other two if it comes off. Carnival has suffered some terrible PR nightmares over the last two years and has multiple lawsuits pending against it but is considered to be the main player in the industry.

Another strategy would be to throw a little bit at all three. You can’t imagine that all of them would go under at the same time, and at least the first one to go would boost the share price of the other two. I’d only put in what I was willing to lose though. Anything could happen in the cruise line industry over the next year. Good luck to you if you are willing to take a punt. If it goes well it will be nothing but plain sailing for your stock portfolio.

Disclaimer: Capital 19 Pty Ltd ABN 17 124 264 366 AFSL 441891 (‘Capital 19’) believes the information contained is reliable, however, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. This communication is for general information only and was prepared for multiple distributions and does not take account of the specific investment objectives of individual recipients and it may not be appropriate in all circumstances. Persons relying on this information should do so considering their specific investment objectives and financial situations. Any person considering action based on this communication must seek individual advice relevant to their circumstances and investment objectives. Subject to any liability which cannot be excluded under the relevant laws. Any opinions or forecasts reflect the judgment and assumptions of Capital 19 and its representatives based on information at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. The investment manager certifies that all the views expressed in this document accurately reflect their views about the companies and securities referred to in this document and that their remuneration is not directly or indirectly related to the views. Capital 19, its directors, representatives, employees or related parties may have an interest in any of the companies and securities in this document and may earn revenue from the sale or purchase of any financial product referred to in this document or any advice. Past performance is not a reliable indicator of future performance. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this document is prohibited without obtaining prior written permission from Capital 19.
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