You Still Don’t Want to Sail Aboard Carnival Stock

Without question, the novel coronavirus pandemic has been particularly devastating to the cruise ship industry. And one of the most conspicuous victims was Carnival (NYSE:CCL). After all, it was the stricken Diamond Princess ship, operated under the Carnival brand, that became the face of the coronavirus early into the disaster. Of course, it wasn’t just Carnival stock that took the heat.

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Competitors such as Royal Caribbean Cruises (NYSE:RCL) and Norwegian Cruise Line (NYSE:NCLH) looked absolutely horrible as the coronavirus made its way to our shores. Naturally, many vacationers quickly canceled their plans not only because of the health risk but the associated inconveniences.

Frankly, the repatriation efforts for passengers and crew was a nightmare due to cruise ships featuring “flags of convenience.”

As well, the internationally diverse workers that operators hire led to its own challenges. Many employees came from countries whose healthcare infrastructure simply could not handle a pandemic. That left several people stranded for months. Clearly, this was not a great look for Carnival stock nor the industry.

However, Carnival would like to put this calamity behind it, starting with a gradual return to normal. In the U.S., the Centers for Disease Control and Prevention has a no sail order through the end of September. Whether that is lifted remains to be seen. Still, even if the order is extended, some guidance from the CDC as to when the industry can resume operations could lift Carnival stock.

Politically, the government agency may have to give something to beleaguered cruise ship operators. Frankly, I’m not sure how long companies like Carnival can last without incurring permanent damage. But if you’re thinking about speculating on CCL, you may want to wait.

Carnival Stock Still Has More Questions than Answers

For those that want to throw caution to the wind, I can appreciate the sentiment. Admittedly, Carnival stock is attractively priced from where it was prior to the pandemic. Also, scientific data may imply that with proper mitigation efforts, cruise ships can set sail safely.

But during the SARS-CoV-1 outbreak that lasted between late 2002 to spring 2004, many feared getting sick due to public transportation. Specifically, the New England Journal of Medicine analyzed the transmission of SARS onboard airplanes. According to the report, “It seems likely that the overall risk to airline passengers is quite low.”

If so, it’s possible that with greater social distancing opportunities on cruise ships, passengers can vacation relatively safely. If so, that would be the boost that Carnival stock needs.

Nevertheless, a word of caution. According to the CDC, “among 3,711 Diamond Princess passengers and crew, 712 (19.2%) had positive test results for SARS-CoV-2.” Therefore, it appears that the novel coronavirus (SARS-CoV-2) is incredibly infectious in close quarters.

CCL stock vs. Covid-19 cases in U.S.
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Source: Chart by Josh Enomoto

Not surprisingly, then, the Carnival stock price shares an inverse correlation with U.S. coronavirus cases as determined by the CDC. At every turn of the pandemic – when cases initially spiked in March and then the summer surge – Covid-19 and CCL moved in opposite directions.

Interestingly, CDC data shows that cases have recently started to rise again. At the same time, we’re seeing a second wave in Europe. As a result, investors started to sell the momentum in CCL, turning shares negative again.

Logically, positive guidance from the CDC should do shares some good. However, this is a wildly dynamic situation. Therefore, if you decide to take a shot here, you’re going against some worrying developments.

Would Anyone Want to Work on Cruise Ships?

For many young people, working on a cruise sounds like paradise. While building professional experience in hospitality and management, you get to travel to exciting places around the world. As well, you get to meet interesting people from all walks of life.

But the projected fantasy of employment in this sector doesn’t always align with reality. That’s according to a January 2020 report by Business Insider contributor Mark Matousek, who wrote the following:

There are many difficult jobs on a cruise ship, but the hardest, most physically demanding position requires working up to 14 hours a day for less than $700 a month, according to a lawyer who represents cruise ship employees.

Most disturbingly, some employees have turned to legal help “after being blinded by cleaning chemicals that have splashed in their eyes or having skin burned off their hands.” Thus, the cruise ship industry had a black eye to deal with prior to the pandemic. But during this crisis, these companies showed just how much they cared about their crew. Which is to say, very little.

And this is a critical cog to the industry narrative that could haunt Carnival stock. Before the global health emergency, cruises weren’t exactly ideal places to work. With the crisis still raging, along with the poor pay and conditions, it’s hard to imagine anyone paying attention willing to work in this sector. With so many questions, I have very little confidence in CCL or the industry.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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.

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