Cruise lines are yet to recover meaningfully from the effects of the pandemic. The sentiment around cruise stocks remains mixed with some experts bullish on factors like pent-up demand while others stay skeptical on the pace of recovery and pandemic-related uncertainty.
Carnival Corporation (NYSE: CCL) is one of the stocks that is under scrutiny. Shares have gained 9% thus far this year but not everyone is enthusiastic about the company’s path ahead. Here are a few points to keep in mind if you are considering this stock:
Pent-up demand and Covid risks
One of the factors that is driving optimism around Carnival is the expectation that pent-up demand for leisure travel will boost the cruise line’s recovery. As more people get vaccinated and the fear of the pandemic slowly subsides, folks could put their travel plans into motion.
However, there are concerns that these hopes could be derailed by the COVID-19 virus and its variants. The resurgence in Covid cases in many regions continues to pose risks to the smooth sailing plans of cruise lines.
In its third quarter 2021 business update, Carnival stated that the Delta variant caused some disruption in its supply chain and impacted the timing of opening for some destinations thereby creating more uncertainty in the broader travel sector and for its own bookings.
Carnival’s booking volumes in Q3 were higher than Q1 but were not as strong as Q2. This was mainly due to a drop in booking volumes in August caused by the uncertainty related to the Covid Delta variant.
Nevertheless, Carnival mentioned that although the broader environment for travel remains choppy, it has definitely improved since last summer and the company anticipates further improvement by next summer if the current trend of vaccine roll-outs and progress in therapies continues. Carnival said its booked position for the second half of 2022 is at a new historical high.
Losses
Carnival’s losses have not changed much over the past year. GAAP net loss in Q3 2021 was $2.83 billion, only slightly down from $2.85 billion in Q3 2020. Adjusted net loss was $1.98 billion, up from $1.69 billion in Q3 2020. The company expects a net loss on both a GAAP and adjusted basis for both the fourth quarter and full year of 2021.
Higher expenses and cash burn
As Carnival continues its return to service, it expects restart-related spend and expenses related to enhanced safety and health protocols to lead to higher ship operating expenses in 2022. In terms of cash burn, during the third quarter, the monthly average cash burn rate was $510 million. For the fourth quarter of 2021, the monthly average cash burn rate is expected to be higher than the prior quarters of the year due to the timing of incremental restart expenditures.
Click here to read the full transcript of Carnival’s Q3 2021 earnings conference call