The Problem With Carnival Is That Customers Have Long Memories

In theory, the rollout of the various novel coronavirus vaccines should be beneficial for Carnival (NYSE:CCL), along with rivals in the cruise-ship operator space like Royal Caribbean (NYSE:RCL) and Norwegian Cruise Line (NYSE:NCLH). As you know, the pandemic has been brutal on this industry. But with light at the end of the tunnel, the narrative should finally turn positively for CCL stock.

Carnival cruise (CCL) ship on the water

Source: Ruth Peterkin /

New daily Covid-19 infections have plummeted from their early January peak, bolstering the argument that the vaccines are indeed working.

Though I don’t want to speak prematurely, it appears that the much-dreaded super-spreader event that was the Super Bowl didn’t materialize. According to data from the Centers for Disease Control and Prevention, one-week-rolling cases have dropped to levels last seen in October.

On paper, this might appear the time to speculate on CCL stock. While some encouraging points are evident as I’ll describe below, you should be careful about climbing aboard Carnival – both literally and figuratively.

Demographic Realities Support CCL Stock

Generally speaking, I’m not getting the warm and fuzzies over travel-related investments. Sure, some names might stand out as distinct upside opportunities. But the idea of banking on a return to big crowds seems problematic, to say the least.

However, CCL stock – and other cruise-ship operators – offer a unique advantage: demographics, demographics, demographics.

Now, demographics is a touchy subject matter, especially recently. For example, Deloitte only really mentioned that millennials are enjoying cruising at a higher rate than before. But back in 2008, Cruise Lines International Association revealed a critical nugget of data: in that year, most cruise ship passengers (93%) were white.

The actual race doesn’t matter. What’s important is that most passengers are of the same heritage which virtually eliminates racial tensions on these floating Petri dishes. As NBC News and others reported, bigotry has skyrocketed during the pandemic.

Beyond this issue, most cruise ship passengers are older, well off, and well-educated. This latter point is significant because, in terms of unemployment, the most educated have been among the least negatively impacted.

Finally, most passengers are married couples or families, which means extra revenue sources. In other words, CCL stock and its ilk represent the transportation sector’s goldmine.

Steep Challenges Remain

From Feb. 1 to Feb. 19, air passenger volume is about 38%compared to the year-ago averages. Of course, this is a substantial improvement from what we saw last year in April, when air passengers were down to single digits on a year-over-year comparison.

Still, 38% is not something to really celebrate. As it stands, this is barely an improvement over the 37.8% YOY comparison seen last month. Sure, January rates benefited from holiday return travel, so the February numbers are decent in that regard. However, most airliners can’t survive on 38% capacity without government bailouts.

And why is it so difficult to get folks to travel? Despite concerted marketing efforts to get people back in the air, most people seem hesitant to do so. Frankly, I’d say that’s for good reason. You can throw as many glitzy, glossy pamphlets in my face: sitting next to someone who might be infected with Covid-19 doesn’t seem particularly safe.

When Deloitte in another study stated that most Americans won’t go back to movie theaters until at least mid-2021, I believe it. Honestly, why would you want to?

This brings me to CCL stock. Yes, cruises are fun and all. But when there’s a pandemic still running rampant throughout the world, being stuck on a big boat doesn’t sound like my idea of a satisfying vacation.

Let’s Not Forget the Optics

Back in early 2020, the poster child for the novel coronavirus was the stricken Diamond Princess cruise liner. Later, the logistical nightmare of safely bringing American citizens back to the U.S. was on public display constantly. That kind of negative PR is difficult to ignore.

But that’s not all. As WebMD rightly pointed out, the Covid-19 outbreak onboard the Diamond Princess forcibly quarantined 3,600 passengers, infected nearly 700 and killed seven. All because of one – just one – carrier.

If you don’t think prospective passengers aren’t thinking about that, you may either be a contrarian genius or delusional.

Therefore, I don’t have the appetite for CCL stock. It seems too much of a binary trade with little nuance in between. I’ll be on the sidelines if you need me.

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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