Carnival Stands a Disaster Away From Losing Everything

From a purely academic perspective, the recovery narrative for cruise ship giant Carnival (NYSE:CCL) arguably couldn’t be better. True, the novel coronavirus pandemic utterly devasted the travel sector, with Carnival being the unwanted poster child. Nevertheless, accounting for the impact, the move ahead seemed to favor CCL stock.

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

Following the acrimony of Washington politics, the much-feared transition of power to the Biden administration went off without much of a hitch. Moreover, the White House got straight to work, encouraging people to get vaccinated. While some hiccups occurred regarding vaccine hesitancy, overall, nearly 74% of the over-18 crowd eventually got at least one shot while 63.1% received two doses.

During this race to mass inoculation, new daily coronavirus infections faded, with several states and local governments loosening their restrictions. Interestingly enough, Major League Baseball provided a time capsule moment for the evolution. At the start of the season, very few people could attend games live. Today, the stadiums are packed – well, packed relative to modern baseball standards.

And these developments were exactly what CCL stock and the rest of the cruise ship industry needed. After so many months away from regular operations and following an avalanche of miscues, tragedies and PR disasters, Carnival couldn’t wait to welcome back passengers to their vessels.

Moreover, in early April of this year, The Mercury News reported that Americans were less worried about contracting Covid-19 than at any point during the crisis in 2020. That sentiment shift couldn’t arrive any sooner for CCL stock because let’s be honest – cruise ships don’t exactly have a reputation for catering to millennials. While younger people have been out on cruises more often, this sector attracts older folks like hard candy.

Generally, as a society, we did everything right. Unfortunately, the delta variant is demonstrating that this might not matter.

CCL Stock Is Flirting with Catastrophe

Recently, InvestorPlace contributor Will Ashworth stated that prospective buyers of CCL stock should probably hold off on their contrarian plans for the moment. “While I believe the cruise industry will return to normal at some point, now doesn’t appear to be that time,” Ashworth stated.

In his article, my colleague recounted the story of a 77-year-old woman who took a Carnival cruise with her family. Sailing to various ports throughout the Caribbean, the woman – a retired Sunday school teacher – fell ill during a port visit to Belize. She took a Covid-19 test, which turned out to be positive.

After transferring to a hospital in Belize, medical personnel sent her to her native Oklahoma by air ambulance, where she sadly passed on. While every death is a tragedy, hers was notable because she was fully vaccinated.

There are so many angles to this narrative but in my opinion, the overriding one is this: Carnival is just one step away from disaster.

What makes it particularly problematic for stakeholders of CCL stock is that this fateful step doesn’t have to be a mistake that Carnival made. In fact, this whole fiasco was something well out of the company’s and the industry’s control.

To be sure, this is a brutally unfair headwind for CCL stock. At the same time, I think investors are best served with the harsh facts. While it’s possible that, as experts like Dr. Scott Gottlieb, former head of the Food and Drug Administration asserted, the Delta variant has peaked and is poised to burn out, no one really knows for sure how to call this crisis.

Frankly, I’m sure more people are performing cost-benefit analyses regarding their cruising ambitions. Remember, the idea of cruise ships being giant Petri dishes is not new and it amplifies during outbreaks, such as the Ebola crisis.

Is It Worth It?

Finally, Ashworth brings up an excellent regarding the nearer-term prospects of CCL stock: the underlying business may not be fun and exciting for customers anymore. Yes, bad stuff happens on cruises at a disconcertingly high rate but this pandemic might be worse. For instance, if you keep your wits about you and abide by safety protocols, you can avoid most forms of trouble.

But a virus? That’s an invisible killer. And the more stories we hear about the delta variant or other mutations, the more people are likely to reconsider their vacation plans to live in relatively cramped quarters with thousands of strangers.

While it’s possible that CCL stock could jump higher on another recovery story, there’s now the non-zero probability that we could be dealing with Covid for years. How Carnival and its rivals respond to that – if they can respond to it at all – is a huge unknown, one that conservative investors may want to take a pass on.

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 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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