Carnival (CCL), Royal Caribbean (RCL): Cruise line stocks have been ebbing and flowing this week

It’s been a bit of a bouncy week for cruise line stocks. Despite the requests made by the Cruise Lines International Association (CLIA), the Centers for Disease Control and Prevention (CDC) refused to lift its conditional sailing order before November 1, according to a report by Fox News.

When the CLIA made its request, cruise stocks climbed up and when the CDC turned down the request, they fell down. Now they are up again. Shares of cruise lines Carnival Corp. (NYSE: CCL), Royal Caribbean Group (NYSE: RCL) and Norwegian Cruise Line Holdings (NYSE: NCLH) all gained on Thursday.

Cruise lines had a tough time in 2020 due to the COVID-19 pandemic and the restrictions being extended this year, despite the vaccine rollout, is not making things better. Carnival has pushed the resumption of some of its cruises in the US and Europe to May and June. Norwegian has also suspended its voyages till the end of June.

Financials

In fiscal year 2020, Carnival saw revenues drop 73% from the prior year to $5.5 billion while adjusted loss amounted to $7.47 per share. Royal Caribbean’s revenues fell nearly 80% year-over-year to $2.2 billion and adjusted loss per share totaled $18.31. Revenues of Norwegian Cruise Line declined over 80% to $1.3 billion in the year with adjusted net loss amounting to $8.64 per share.

Fleet

In order to reduce expenses, cruise lines took measures to optimize their fleet and capacity. In January, Carnival said it was disposing of 19 ships which in total would represent around 13% of pre-pause capacity. The company expects the sale of less-efficient ships to yield operating expense efficiencies of approx. 2% per available lower berth day (ALBD) and reduce fuel consumption by approx. 1% ALBD over the coming years.

Royal Caribbean divested three ships from its fleet and three ships being used by its Pullmantur affiliate. The company also sold its Azamara brand, which included a three-ship fleet, to Sycamore Partners for $201 million.

Bookings

In January, Carnival said its cumulative advanced bookings for the second half of 2021 were within the historical range and bookings for the first half of 2022 were ahead of 2019. Royal’s booking activity for the second half of 2021 is in line with the company’s expectations of cruise resumption. Cumulative advanced bookings for the first half of 2022 are within historical ranges.

Although its bookings for the second half of 2021 remain below historical levels, Norwegian is seeing strong booking trends for 2022 with the first half booking levels significantly ahead of 2019. These trends altogether point towards a strong long-term demand for cruising.

Cash burn and liquidity

Carnival ended Q4 2020 with $9.5 billion in total liquidity. The company’s monthly average cash burn rate for Q4 was $500 million. Carnival expects the monthly cash burn for the first quarter of 2021 to be approx. $600 million. At the end of Q4, Royal had total liquidity of $4.4 billion and the company expects its average cash burn to be approx. $250-290 million per month.

Norwegian had liquidity of $3.3 billion at Q4-end and its average monthly cash burn for the quarter was around $190 million. For Q1 2021, Norwegian expects cash burn to be around $190 million per month, or around $170 million, excluding debt modification costs.

Stock performance

Carnival Corp. was up 3.3% in afternoon hours on Thursday. The stock has gained 44% over the past 12 months. Royal Caribbean was up 1.7% and the stock has jumped 104% over the past one year. Norwegian Cruise was up 1.9% and the stock has climbed 64% in the past year.

Despite the CDC’s decision, there is a slight sense of optimism that as the vaccines are distributed and safety measures are taken, things could slowly smoothen out over the coming months and with the pent-up demand for travel, the situation could get better for cruise lines as the year progresses.

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