Norwegian Cruise Lines (NYSE: $NCLH) has taken a devastating blow from the world wide pandemic. During March 2020 its stock price plummeted 86% to $7.77 per share.
This was a result of the “no sail order” issued by the U.S. Centers for Disease Control, preventing all cruise lines from resuming their operations until July 24th, 2020. The spread of the Corona virus was the cause of this strict hault of the industry. The pandemic caused even the world’s strongest economies to shut down for months.
Despite the hit Norwegian and other cruise line stocks took, bankruptcies seem very unlikely. NCLH raised 2.25 billion dollars in liquid cash through unsecure exchangeable notes totaling it’s liquidity to 3.5 billion.
While some of these notes were distributed at extremely high interest rates, 12.25%, the company is showing they are optimistic about resuming business in the future and view bankruptcy as a slim possibility.
With this amount of cash reserves Norwegian states that they can afford another 18 months of not sailing. Additionally there are key signs that these cruise lines will still be a family favorite vacation choice after the pandemic ends.
In May 2020 Carnival Cruise Lines (NYSE: $CCL) had a 600% increase in bookings, this shows people will not let fear of the virus prevent them from vacationing. People are eager to go back to normal life and leave their homes.
While there may still be some portion of the population that remains fearful of COVID, it will not affect the operations of cruise lines. Most of the bookings are from families typically younger in age, although there are some older couples planning on vacationing again once the pandemic ends.
Additionally, portions of the population living in more rural areas are responsible for a high volume of bookings. This could be due to the fact that they are less exposed to the virus and therefore less fearful of it.
CEO of NCLH stated “Customers are still booking. Today we are only slightly below in load factors compared to where we were at this time last year for … 2021 sailings. So our loyal guests are still behind us, pricing remains strong.”
“Our loyal guests are still behind us, pricing remains strong.”
Statements such as this one give investors confidence of a strong rebound from the company which is why it is up over 100% since March 2020. Consumer behavior is an essential factor to keep an eye on as the world begins to reopen. Investors must keep in mind what services people will jump right into post pandemic.
Optimism is clearly in the air for investors as stocks prices have risen and cruise lines are looking to begin sailing by fall 2020. As operations resume as normal in the coming months all cruise lines stock prices should also climb back up to at least their average price from 2019.
While the cruise industry is appearing like it will have a strong fourth quarter there is always risk to every investment. The biggest fear of bullish cruise line investors is a second wave of COVID- 19.
This fear is associated with both the world reopening and the global protests surrounding the murder of George Floyd. As businesses reopen and people gather in thousands to protest it is hard to not feel at least a small amount of fear in the gut about another global lock down.
In the United States cases have begun to rise in few states in the South West and Florida. Although, a large portion of this fear can be conquered due to the strong possibility of a vaccine being approved by the end of 2020.
Overall, the cruise line industry may have a bit of a rocky road for the duration of the summer months, but once there is a set date for companies within the industry to begin sailing their stock prices will soar. Bankruptcy does not seem likely for any of the large cruise lines ensuring a strong rebound once the world continues its normal operations.
Currently cruise lines are trading at around 40% of their average price from 2019.
The most simple rule in trading equities is buy low sell high. Applying this to the cruise sector NCLH had an average price of $53.45 in 2019 and is currently trading at $20.67 (38.7% of its 2019 average).
Additionally, Carnival Cruise Line had an average price of $47.64 in 2019 and is currently trading at $20.25 (42.5% of its 2019 average).
Almost identical relationships can be found across the whole sector.
The least risky investment out of the three is Carnival. This is because it has the highest market capitalization at 15.97 billion. Also, it is the world’s largest cruise line, sailing about 50% of cruise goers.
On the flip side, Norwegian Cruise Line gives the chance for the highest return as it has taken the most severe loss in the industry.