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Is Carnival a Buy as It Comes Full Circle from the Pandemic?

At the start of the novel coronavirus pandemic, the cruise ship industry was the very public face of the burgeoning crisis. And Carnival (NYSE:CCL) was the dubious leader of the pack, with its Diamond Princess cruise ship stuck in quarantine off the waters of Yokohama, Japan. Inevitably, CCL stock cratered. But with Covid-19 cases fading, could Carnival spark a full circle comeback?

CCL stock cruise stocks docked cruise ships
Source: Kokoulina /

From a common-sense perspective, it’s not hard to see why the bulls are optimistic about Carnival, along with rivals Royal Caribbean Cruises (NYSE:RCL) and Norwegian Cruise Line (NYSE:NCLH). It’s now been over a year since state and local jurisdictions imposed the first series of lockdowns. At a certain point, people just get tired of the restrictions. Naturally, pent-up demand could do wonders for CCL stock.

But it’s not just an anecdotal observation that drives the optimism. According to data from the Bureau of Transportation Statistics, more Americans are choosing to come out of the home across different transportation methods. In particular, the frequency of trips of distances between one mile to 25 miles is conspicuously improving, confirming the slow and steady recovery in the labor market.

You’d figure that this is very encouraging for CCL stock. First, people are returning to the office, which means that not every job is being outsourced to a foreign country. Second, the very act of commuting to work helps individuals acclimate to their pre-pandemic routines. Psychologically, this is a key hurdle to overcome as the cruise ship industry works overtime to convince the public that cruising is safe.

Arguably, the biggest positive catalyst for CCL stock in terms of sentiment riding is the airliner industry. Based on the latest data from the Transportation Security Administration, we’re now seeing air passenger volume at around two-thirds of 2019 levels.

Nothing speaks to public trust than sitting next to hundreds of strangers in a tightly confined space.

CCL Stock Is a Sociological Gamble

As you know, the cruise ship industry tends to cater to the older demographic. But the problem last year regarding CCL stock was that Covid-19 was particularly dangerous for this demo and those with underlying conditions.

Therefore, cruise ship executives must be breathing a sigh of relief from a recent AARP article, which states that older vaccinated Americans are eager to visit their relatives and to take those vacations that have been put on hold.

In addition, the cruise ship industry is making direct overtures to older people, assuring that all passengers onboard will be fully vaccinated against Covid-19. At time of writing, it’s unclear whether Carnival will adopt a 100% vaccination requirement policy. Still, if its rivals enjoy outsized sales from their policies, it will appear foolhardy for Carnival not to follow suit.

Fundamentally, it appears CCL stock has a solid argument. But it’s not completely out of the woods. For instance, older people tend to vote conservative, according to data from the Pew Research Center. Generally, it’s not liberals and progressives that are against vaccinations. Further, even for a politically neutral person, the idea of vaccine passports seems a bit too much like Big Brother.

As well, improving transportation statistics may be misleading for an investment like CCL stock. When you drive off to work, you do so because you have to. It’s the same thing with air travel. If people could afford their own private plane, I’m sure most would take that option.

The real question is, how many people will want to pay money to sit aboard a floating Petri dish by choice? Here, sentiment toward returning to the box office may provide a clearer answer. In a Morning Consult survey conducted between March 18 to 22, most Americans feel uncomfortable about movie theaters.

So, how about a cruise ship, where the underlying industry doesn’t exactly have the greatest health reputation?

The Red ‘Threat’ in the Shadows

Cruise ships, like other travel methods, is an international venture. And in recent years, tourism demand has been characterized by an explosive boom from China. In 2016, CNN Business reminded us that “Chinese tourists just can’t get enough of cruises.”

Why? According to Jane Jie Sun, a senior executive at CTrip, China’s largest online travel agency, she “attributes the strong demand for cruises among Chinese tourists to how suitable they are for large groups, such as big family gatherings.”

Of course – that’s what everyone is looking forward to, seeing big gatherings of Chinese tourists from China.

Without getting into the nitty gritty, I see two outcomes. Either Chinese (and Asian) tourists stay home because they’re watching the news or cruise ships will have huge PR battles to contend with as fights and conflicts break out between passengers.

Overall, I’m encouraged with the uptick in travel demand. I’m just not convinced that it’s enough to outweigh the potential headwinds.

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.

Article printed from InvestorPlace Media,

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