It’s going to be a long road back to normalcy for Royal Caribbean (NYSE:RCL) and fellow cruise line operators, but given the way RCL stock has moved recently, it looks like investors think that’s coming sooner than later.
The travel and leisure sectors were among the hardest hit during the March sell-off, and Royal Caribbean was more rule than exception to that trend.
At its January peak, RCL stock traded above $135. At its March nadir, it slipped below $20. On May 28, it closed just below $52, meaning shares have nearly tripled in just about two months.
First, a brief refresher. At the peak of the panic over the novel coronavirus, proverbial consensus emerged that “no one” would want to fly for fear of being a confined space for hours on end while the virus was active. “No one” would want to enter a casino and sit inches from other humans while handling dirty chips or pulling uncleaned slot levers.
And certainly “no one” would want to get on a cruise liner after seeing all those images on the news of ships being held at sea, prevented from coming to port because a crew member or passenger contracted the coronavirus.
Reality Rapidly Changed
The other supposed death knell for cruise lines is the weakening economy. With U.S. unemployment spiking to heights not seen in generations, the question quickly became “Who’s going to have money to take a cruise?”
Price action in Royal Caribbean and its rivals suggest that the much ballyhooed V-shaped recovery we hear so much is either underway or will be soon. Consider this: airlines are flying and casinos are reopening, but cruise ships remain docked. Yet cruise stocks are following those two other industries upward. Fortunately for Royal Caribbean bulls, there’s data to support the recent upside.
“Even though ships aren’t in operation today, based on early-2021 booking trends, management is encouraged that as ships commence operations and the company ramps up marketing efforts, booking trends should continue to strengthen,” Stifel analyst Steven Wieczynski said in a recent client note.
The bookings news is huge for Royal Caribbean and peers, such as Carnival (NYSE:CCL) and Norwegian Cruise Lines (NYSE:NCLH), for multiple reasons. First, cruise goers are either willing to roll the dice or confident that a second wave of Covid-19 cases isn’t on the way. Second, these travelers are committing to these bookings without a vaccine/cure for the virus. Per Wieczynski:
“Contrary to popular belief, RCL’s 2021 booked position isn’t heavily tied to canceled 2020 cruises getting rebooked into 2021. RCL remains in a normal booked position relative to the last five years which is somewhere around 15%-25% of forward 12-month inventory based on our math. New or “unique” bookings make up the majority of forward bookings as only 20% of canceled cruise credits have been rebooked at this point.”
Bottom Line
In financial markets, timing isn’t everything, but it sure does help. What I’m saying here is that if investors want to nibble at cruise lines, they can’t wait until the world is “normal” again; the markets will price that in before it happens.
As it pertains to Royal Caribbean and other cruise operators, this is significant because during the darkest days of the virus, the consensus expectation was that it would be 2023 or 2024 before the industry looked like its 2019 self again.
The aforementioned bookings data suggest otherwise, meaning cruise lines could be on a credible path to normalcy next year (already being priced in) with an eye on strutting their 2019 stuff again as soon as 2022.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.
