How the Coronavirus and Competition Threaten Carnival

With all that has transpired with the novel coronavirus pandemic, nothing really surprises me anymore. So, when I heard about the latest negative headlines impacting Carnival (NYSE:CCL) and the entire cruise liner industry, I wasn’t exactly shocked. There’s a reason why I’ve been skeptical about CCL stock since this outbreak devastated the global economy.

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According to the U.K.’s Daily Mail, at least “40 passengers and crew on a luxury Norwegian cruise liner have been diagnosed with COVID just weeks after the industry relaunched…” Even worse, health experts must now perform contact tracing and other investigative measures of 387 people who departed the coronavirus-stricken vessel before the outbreak was discovered.

Naturally, CCL stock dropped on the news, as did shares of rivals Royal Caribbean Cruises (NYSE:RCL) and Norwegian Cruise Line (NYSE:NCLH).

Notably, the passengers on the infected vessel hail from all 11 counties of Norway. Once praised by the international community for its quick and decisive handling of the pandemic, the Norwegian government faces the possibility of a second wave.

If that wasn’t enough to make you lose your appetite for CCL stock and the sector as a whole, Carnival’s AIDA Cruises, which operate out of Germany, suffered a delay in its relaunch. That’s because the ships are registered in Italy and its government has not granted final approval.

Still, with the Norwegian cruise ship outbreak, I’m not sure if consumer demand for a vacation is enough to lift CCL stock and its ilk from a second round of volatility. After all, if Norway is having problems launching its cruise ship industry, then there’s no way we won’t incur problems.

This has toxic written all over it.

CCL Stock Faces Competitive Concerns

If I may be blunt, I believe Norway is the worst place for such an outbreak to occur, at least from the cruise liners’ perspective. Let’s say an outbreak occurred on a ship in China. Immediately, many would-be passengers can defend their actions via plausible deniability: the outbreak started in China, they eat weird food, etc.

However, this happened in Norway. The last time I checked, Norwegians are white. They have cultural mores similar or at least more palatable to us because we’re both western countries. Hence, vacationers don’t have the luxury of plausible deniability. Eventually, doubt could creep into the valuation of CCL stock.

But even if this incident never occurred, CCL stock in the new normal is a risky proposition. Yes, the bulls are correct that people want to go on vacation. You won’t get any complaints from me – vacations are necessary to recharge our batteries. However, the perceived health risks with cruise ships have shifted demand to competitors.

As you know, one of the markets that received a massive burst of enthusiasm following Covid-19 was recreational vehicles. Admittedly, this caught me off guard. Initially, I thought that the lockdowns would spark an economic crisis that would prevent extravagant purchases.

Instead, the folks that could afford them bought RVs by the truckload. Looking back at it, it makes perfect sense. Americans will go on vacation even amid a nuclear war. But they want to do so safely. Therefore, RVs represent an ideal alternative. In this platform, you can skip the airports, the airplanes and possibly contaminated hotels.

Additionally, RVs offer a great way to ride out the pandemic even if vacationing isn’t your priority. It’s your vehicle so you make the rules.

Cruise Experience Risk for CCL Stock

Like all Americans, grocery shopping has become an onerous chore. While I appreciate the mask rules to keep everyone safe, I must say that it’s uncomfortable to wear over time. Further, the social distancing rules and those stickers guiding you how to shop make you wish for the old normal.

Of course, I put up with it because what choice do I have? It’s an essential service.

Not so with cruise ships. And this is another point to consider before getting too heavily involved with CCL stock. You’re paying for a luxurious, relaxing experience. But because of the pandemic, your voyage will be anything but comforting.

Imagine every day, you must abide by foreign mitigation protocols that you’ve never seen before. Also, in the back of your mind, you’ll be thinking about Covid-19. How can you not?

Then imagine that an outbreak does occur on your ship. It’ll be another nightmare. But perhaps not as bad as the one the deep-seated stakeholder in Carnival stock would suffer.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/08/how-the-coronavirus-and-competition-threaten-carnival/.

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