BBC News published an article on April 9 with the headline Will we ever take cruise holidays again? I thought that would be an excellent subject to address for anyone who owns Royal Caribbean (NYSE:RCL) and is wondering if RCL stock will ever return to $135 where it traded in mid-January.
The BBC article fails to consider several points when it ridicules the entire cruising industry for registering its ships in foreign countries to save taxes and avoid American or European labor laws.
First, consider how many travel agents make a living supporting the cruise industry. According to Cruise Lines International Association’s (CLIA) 2019 Cruise Trends & Industry Outlook, more than 15,000 travel agencies make a living from cruising.
They are such an integral part of the cruise industry; Royal Caribbean recently set up RCL Cares, a one-stop resource for travel agents looking for information to navigate the CARES Act financial assistance programs.
“Why we take a keen interest in wanting to support our travel partners is because they heed the help right now. We want to be the corporation that truly steps up to the plate and helps them, not just in words, but in actions,” Royal Caribbean’s blog stated April 6.
Cynics will say this is nothing more than Royal Caribbean trying to make itself look good after putting a lot of people in danger as a result of the coronavirus.
To the BBC’s credit, it does point out that the situation was made worse by the fact that countries where boats docked forced the cruise lines to keep their passengers on board, making a bad situation worse.
RCL Stock in the Bigger Picture
The BBC article argues that these massive ships do little to the local economies of destinations where they visit.
“No one is willing to bail them out because of their tax avoidance, but also because of the negative impacts they have at their destinations… they contribute very little to the local economy,” stated Plymouth University professor Sheela Agarwal.
“[Cruise passengers] spend very little, look around the place for five or six hours with a packed lunch, and then go back on board for dinner.”
I find it hard to believe that all these Caribbean countries would welcome all these cruise ships — 34.4% of all cruises visit the Caribbean — if there wasn’t an economic benefit. For starters, every person who visits these places for a short visit may come back for a more extended stay. That’s the power of advertising.
Secondly, CLIAs 2020 report suggests 65% of travelers spend a few days at the embarkation and debarkation ports after their cruises. Considering many of the Caribbean cruises leave from Florida, the U.S. benefits plenty from cruise ships.
Another stat from CLIAs annual report that stands out for me is the $46 billion in wages the cruise industry pays out each year to more than 1.1 million people.
It’s easy for people in developed countries to begrudge the cruise ships for paying low wages. Still, from my first-hand experience, I found that most people who work on these boats are grateful for their salaries and show it by providing passengers with professional service.
The workers on these boats spend months away from their families so they can provide for those same families. If they didn’t have to do it, they wouldn’t.
Further, as CLIA points out, a significant portion of cruise passengers (14.2 million according to the trade group’s 2019 report) come from North America. Most of those passengers fly to their cruise embarkation ports by U.S. airlines. The airline industry benefits significantly from the cruise industry.
Add in all the ancillary industries such as food service, retail, etc., that have been hurt by a dormant cruise industry, and it’s not nearly as clear cut that cruise lines are the enemy.
The Bottom Line on RCL Stock
Professor Agarwal makes a valid point about tourists resuming cruising.
“Tourists have very short memories,” Agarwal says. “This is like when a terror attack affects a destination. Look at the attacks in Paris and Brussels – three months maximum [fall in visitor numbers], and they were back to normal.”
So, to answer the question about whether Americans will ever return to cruises, you better believe it.
Will it be tomorrow or the next day? No way. It’s going to take many months for this to sort itself out.
However, as I said about Royal Caribbean earlier in April, CEO Richard Fain is a seasoned veteran who’s been through plenty of threats to its livelihood. He’s always brought the company through to the other side healthier than ever.
I have 100% confidence he’ll do it again. And when he does, you can be sure RCL stock will be trading over $100.
In my books, it’s a buy.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.