Stocks of cruise lines are rebounding today after selling off sharply yesterday on investor fears of a slowdown in travel spending.
Shares of Carnival (NYSE:CCL), Norwegian Cruise Line (NYSE:NCLH) and Royal Caribbean Cruises (NYSE:RCL) are each up about 2% today in pre-market trading. This rise comes after suffering a decline of more than 10% yesterday (June 16). The big downturn in the share prices appears to have been prompted by growing fears of a global economic recession that could lead consumers to put off spending on travel and vacations. Year-to-date, shares of CCL, NCLH and RCL are each down more than 50%.
Yesterday’s drop in cruise line stocks was the latest blow to an industry that has been decimated since the Covid-19 pandemic hit in March 2020. Prior to the global pandemic, the worldwide cruise industry was estimated to be worth $150 billion in annual revenue, according to accounting firm KPMG. However, the U.S. cruise industry alone is estimated to have lost $32 billion in 2020 alone as the Covid-19 crisis left ships docked in harbors along the East and West Coasts. More than 250,000 jobs in the U.S. were lost as the cruise industry cratered.
There were reports in late 2021 and in the early months of this year that the cruise industry was rebounding, with Covid-19 restrictions lifted and bookings rising sharply. However, talk of a recovery for the industry looks like it may have been premature. Inflation is at its highest level in the U.S. since 1981. And the Federal Reserve has been aggressively raising interest rates to cool off overheated consumer prices.
Why It Matters
Market volatility and recession fears aside, the largest cruise line operators have been grappling in recent months with several issues. These issues primarily include staff shortages and renewed Covid-19 outbreaks in different parts of the world, notably Asia. Shares of CCL, RCL and NCHL all dropped more than 10% in late May after Norwegian Cruise Lines announced that it is suspending all cruises in Asia from October 11 this year until April 25, 2023 so that it can concentrate its fleet of vessels in other areas of the world.
At the same time, the Centers for Disease Control and Prevention (CDC) continues to loom over the industry. The CDC, for its part, is just ensuring that safety measures remain in place to prevent the types of widespread outbreaks of Covid-19 on cruise ships that were seen at the outset of the pandemic. The end result is that while the Covid-19 has retreated, cruise line operators continue to manage the fallout from the global pandemic even as they try to get their operations back up to full speed.
What’s Next for Cruise Stocks
While cruise line stocks look to be recovering today, the gains are marginal compared to the value that has been lost year-to-date. Today’s recovery could also be fleeting and fragile given the ongoing volatility in the entire market and investors frayed nerves concerning the outlook for inflation and a potential recession. Investors should be careful with CCL, RCL and NCHL stocks.
On the date of publication, Joel Baglole 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.