Undoubtedly, amid the devastation from the novel coronavirus, the cruise ship industry has absorbed the brunt of the damage. I’m not just referring to the equity erosion of companies like Carnival (NYSE:CCL), Royal Caribbean Cruises (NYSE:RCL) and Norwegian Cruise Line (NYSE:NCLH). Rather, the sector has suffered a public relations nightmare that nothing — not a sinking ship nor brown water incidents — can match. At the same time, I’m sure contrarians are attracted to CCL stock due to the discount.
Admittedly, it’s not an unreasonable framework. Beyond the discounted price, at some point, consumer sentiment will shift back toward the beleaguered industry. It really comes down to the megatrend of demographics, something that I discuss frequently regarding long-term investment strategies.
Obviously, cruise ships have a tendency to attract the older demographic. And that’s no slight to CCL stock. For instance, retirees are looking for experiences to reward a lifetime of labor. Therefore, many cruise-ship passengers are willing to shell out more money for a more memorable vacation.
But an interesting dynamic has occurred with the much younger millennial generation. Instead of working the daily grind in order to get ahead like every other generation, millennials also focus on experiences. In fact, the phenomenon is so powerful and prevalent that many social scientists have labeled this trend the “experience economy.”
Not only that, CCL stock is a clear beneficiary of this new economy, whether or not statistics quantify it. Because an integral component of this trend is documentation of exotic travel spots and activities, egging onlookers to keep up.
Further, few other travel platforms give you more bang for your buck than cruise ships. Unfortunately, this isn’t a winning idea yet.
CCL Stock May Launch … Eventually
Don’t get me wrong: I love the forward-thinking concept here. In a few years, I can imagine that the industry will be much better off than it is right now. But jumping far ahead of the curve also creates unnecessary pain for your portfolio.
Right now, investors are collectively monitoring economic data, particularly consumer sentiment. Sadly, the Department of Labor continues to report millions of Americans filing for unemployment benefits. Over a five-week period, more than 26 million have made jobless claims.
When considering the fact that many workers have been unable to make those claims due to antiquated communications infrastructures underlining state benefits offices, the current unemployment rate could be 20% or higher.
Of course, we should expect this figure to improve gradually as our country reopens. But I mention this because it’s patently clear that vacationing is the last item on people’s agendas at the moment.
Another reason to steer clear of CCL stock for the time being is the severe PR damage. As I stated, cruise ship passengers have reported many problems with their travel experiences. Nothing comes close to what coronavirus-impacted passengers have faced.
From a health perspective, would-be travelers witnessed in horror as the virus spread rapidly, with government agencies unwilling to immediately dock afflicted vessels. In that situation, going out to far off places is a liability when all you’re trying to do is get back home.
To incentivize customers, several cruise lines have made changes to their booking and cancellation policies. Over time, that might sway those who want to take advantage of discounts and a more relaxing experience (due to lack of passengers).
However, the industry will likely find that generally, no price is low enough to make an appreciably convincing argument.
Voluntary Quarantines Will Still Pressure Cruise Ships
Here’s the real problem for CCL stock in the immediate time frame. No matter how many discounts and incentives the industry rolls out, consumers care more about their health than even their own livelihood.
That’s according to a Reuters/Ipsos opinion poll, demonstrating that 72% of American adults prefer shelter-in-place orders to remain intact “until the doctors and public health officials say it is safe.” In my view, that’s powerful evidence that cruise liners and the broader travel industry have some waiting to do.
Unlike other sectors, travel requires close contact among passengers. With cruise liners, it’s worse because you’re stuck with thousands of others. Moreover, the international community has set a precedent that if an infectious disease spreads aboard a vessel, they’ll impose quarantine measures until they formulate a plan.
By then, many passengers could succumb to the disease, rapidly spreading panic and fear.
As I said earlier, even the beleaguered cruise line industry will get over this crisis. However, let’s be realistic — it will take longer than other sectors to recover. Thus, while CCL stock could be a buy, it’s not one right now.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
