Shares of cruise line operators traded in red on Thursday over concerns about the delta variant of COVID-19 and its impact on the travel industry. Carnival Corp. (NYSE: CCL) was down 1.8% in afternoon trade. The stock has dropped 20% in the past one month.
The travel industry had begun to recover with the onset of summer and the rollout of vaccines and easing of restrictions but COVID variants are throwing a spanner in the works. Although the pent-up demand for travel is pushing the industry forward, the rise in cases is hindering this progress.
Despite the challenges faced over the past year, there is optimism for the cruise industry in general. Based on data from the Cruise Lines International Association, 74% of cruisers are likely to cruise in the next few years while 58% of international vacationers who have never cruised are likely to cruise in the next few years.
A report by Cruise Market Watch states that the worldwide ocean cruise industry is projected to reach a market share of $23.8 billion in 2021, which would reflect an increase of around 82% over 2020 but a decrease of nearly 53% from 2019.
So where does Carnival stand in all this?
In its second quarter 2021 business update, Carnival said it is working on getting its full fleet back in operation by next spring. The company believes it is well-positioned to resume travel in phases thanks to its various brands that can start operations independently based on the environment in their respective markets.
Last month, the company said that 27 ships, or approx. 35% of capacity have resumed or are slated to resume by the end of the third quarter of 2021 while an additional 15 ships, or nearly 20% of capacity, are set to resume by the end of the fourth quarter of 2021. These 42 ships, in total, represent over 50% of capacity.
Carnival witnessed a pickup in bookings worldwide without spending much on advertising or marketing. This reflects the underlying demand for cruises this summer which gives the company optimism about the future. The company also saw a growth in customer deposits in Q2.
Booking volumes for all future cruises during Q2 were 45% higher than booking volumes in Q1. Cumulative advanced bookings for full-year 2022 were ahead of 2019 levels as of the end of May. Total customer deposits as of May 31, 2021 were $2.5 billion compared to $2.2 billion as of February 28, 2021.
On Wednesday, Carnival announced that its Caribbean cruise had sold out in six hours on the first day of booking while the Portugal & Canary Islands cruise received a strong response with 80% sold on the first day. The company attributed this to the pent-up demand for cruise travel.
Although these results look encouraging, the rising cases of the COVID Delta variant might put Carnival’s and its peers’ growth prospects at risk. It remains to be seen if any new restrictions will put travel plans on the backburner posing challenges for cruise line operators. However if the situation is brought under control, Carnival and its peers might just weather this storm.
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