The cruise line industry is approaching to take a gap year. Carnival‘s (NYSE: CCL) (NYSE: CUK) The Princess cruise line announced Wednesday afternoon that it will suspend almost all of its cruises until mid-December. Only its outings in and out of Australia will resume operations sooner, and even those restart dates are getting ahead of November.
No one wants to sail again than Carnival, Norwegian Cruise Line (NASDAQ: NCLH)and Royal Caribbean (NYSE: RCL). The top three cruise line operators are losing a lot of money during the hiatus. Passengers who book and rebook trips are frustrated with false starts. Crew members are probably looking for other lines of work. No one wins when departure dates are removed, and that includes shareholders.
Image source: Carnival Corp.
Love ship
Princess: the cruise line behind the iconic Love boat show in the 1980s – apparently taking a conservative stance. Carnival’s eponymous line, the parent company, as well as Royal Caribbean and Norwegian Cruise Line still hope to start entertaining passengers starting in October. However, we have seen that the industry does nothing more than kick this in the future. Every few weeks it seems that one of the main players shudders and the others do the same.
If Princess can resume navigation in mid-December, it will have been more than nine months since she became the first cruise line to suspend operations. It doesn’t have to end here. In a few weeks, will we talk about 2021 as the new restart date for the industry?
Meeting the new mid-December date is important. The end of the calendar year is when high-priced vacation getaways begin, and no cruise line wants to fly its peak travel season after a lost summer. However, this is finally out of your control. The pandemic remains a threat, and travel restrictions, as well as current quarantine requirements, would make it difficult to secure global passengers, even if ships were allowed to sail again.
The good news is that Carnival, Royal Caribbean, and Norwegian Cruise Line have been saving for a rainy day since the industry disruption in mid-March. They have raised billions each, presumably enough to weather this protracted recession. They can raise billions more if the well runs dry. However, it is not that the need for liquidity ends on the day that passengers start navigating again. Cash flow concerns will linger, especially with so many passengers navigating with cruise credits for canceled departures.
Consumer demand can also be slow until the pandemic is completely eradicated, and the industry is already shrinking its fleets. There is also a price to pay for all the money they have raised, and higher interest expenses will raise the bar.
For now the news is not encouraging. New resumption dates continue to be drawn in the sand. No one is generating sustainable income if travel continues to be rejected, and that makes it one of the riskiest niches in what is already one of the riskiest market sectors. Going back to business this year will help make things easier.
