Carnival Is Caught in a High-Stakes Contest It Might Not Win

If there was a dubious competition for which blue chip suffered the most from the novel coronavirus pandemic, Carnival (NYSE:CCL) stock would be right up there.

Carnival cruise (CCL) ship on the water
Source: Ruth Peterkin / Shutterstock.com

Indeed, it was the Diamond Princess cruise ship — under the broad Carnival umbrella — that became the face of the global crisis.

Either way, it was a godsend for CCL stock that cruising received the green light to resume operations, however mitigated.

Near the end of 2020 to early June of this year, CCL stock gained over 154% and at the time, for darn good reason.

Finally, after several months of vigorous research and development, the biotechnology/pharmaceutical sector forwarded clinically proven vaccines. Following a rough start, the vaccine rollout began in earnest.

Moreover, many American consumers — particularly the higher-wage-earning ones — were financially healthier than one might presume at the start of the crisis.

With work-from-home measures facilitating savings on long commutes to government stimulus checks, several folks were sitting on a pile of cash.

Add into the mix the concept of “revenge shopping” — that is, buying products and participating in activities with gusto given that Covid-19 denied such consumption last year — served to benefit CCL stock.

Life is short and Americans want to go on vacation now. Naturally, this sentiment boded well for Carnival and the rest of the cruise liners.

However, there’s one major sticking point. According to CBSNews.com:

Carnival and other cruise lines were granted permission by the CDC [Centers for Disease Control and Prevention] in April to resume sailing in U.S. waters by mid-summer so long as 95% of customers and 98% of crew are vaccinated against COVID-19. However, Florida has a law prohibiting companies from requiring that customers be vaccinated against COVID-19.

So close and yet so far.

Proposed Solution Might Not Pan out for CCL Stock

To work around this situation, the company recently announced a rule where unvaccinated passengers who want to board a Carnival-owned cruise ship must first purchase a travel insurance policy worth at least $10,000.

“The insurance requirement takes effect July 31 and applies to excursions leaving from Florida, Carnival said on its booking website. Carnival has four Florida ports, in Jacksonville, Miami, Orlando and Tampa.”

Unfortunately, every indication suggests that the workaround won’t work for CCL stock. For one thing, shares have been hemorrhaging market value since the June 8 session. Further, CCL has been pinging red ink since the latest company announcement was made.

Of course, one of the major impediments here is that customers purchasing insurance policies won’t have a direct impact on Carnival’s top or bottom line.

The new restrictions actually impose headwinds on the company’s financials. An analysis by LendingTree suggests that the policy may add $100 to $200 per person.

If that wasn’t bad enough, the added cost is disproportionately troubling for CCL stock and its ilk.

Recently, cruise ships have attracted two demographics: older people (retirees) and younger people seeking superior value-for-dollar experiences. Both groups, while near the opposite ends of the age spectrum, have one factor in common: the cost basis.

You add a hundred or two to the total bill and that’s not going to sit well with your target audience.

For instance, the average per-passenger, per-day cruise expense is around $214. So you’re really talking about adding a day’s worth of expenses for something as un-fun as an insurance policy.

But here’s the problem: I don’t think health authorities or the cruise ship industry has any choice but to demand something from their passengers regarding Covid mitigation.

Yeah, it’s a pain for certain passengers but one more incident and that could be all she wrote for CCL stock and the whole cruise shipping industry.

Better to Wait out the Volatility

Personally, it’s hard to see how this circumstance could end well for CCL stock. Both sides — the pro- and anti-vaccination crowds — have strong opinions about their perspectives. As well, state legislators are sensitive about federal agencies overstepping their powers.

At this point, the only thing all parties can do is to agree to disagree. But that kind of armistice is exactly the ambiguity that Carnival and the shipping industry don’t need.

The issue, though, is that the entities participating in the politics of the matter are too vested in their position. And that makes me worried about CCL stock.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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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