For the second day in a row, the shares of the main cruise lines Norwegian Cruise Line Holdings (NASDAQ: NCLH), Carnival (NYSE: CCL) (NYSE: CUK), and Royal Caribbean (NYSE: RCL) are down Friday, down 7.1%, 6.7% and 5.8%, respectively, as of 1:34 p.m. EDT today.
There are no obvious catalysts behind today’s drops, unless you count Carnival affiliate P&O Cruises’ announcement on Thursday morning that they were extending their cruise break until January 2021.
But popular travel industry analyst ThePointsGuy.com raised a worrying issue on Thursday when he noted that around the world, a total of nine cruise lines had resumed at least limited crossings, including none. is Carnival, Royal Caribbean or Norwegian. These three major cruise lines canceled just about all of their cruises until early November.
But not all news is bad. At least one of the nine cruise lines that have resumed operations in Europe, Costa, is a subsidiary of Carnival. Another, TUI Cruises in Germany, is partly owned by Royal Caribbean, according to data from S&P Global Market Intelligence. These startup lines should provide at least a trickle of income for their parent companies.
The long-term implications of Carnival’s decision to retire or cede 18 of its own cruise ships are even greater than a short-term simmering revival of the cruise business. By reducing industry capacity, Carnival is helping to ensure that cruise lines that survive the current recession will emerge with their pricing power intact.
As Cruise Industry News noted Thursday, those 18 ships were already behind schedule. Smaller and older than the average cruise ship at sea today, the ships in question would only account for 3% of Carnival’s operating profit in 2019 but carried 12% of its operating costs. Taking them out of the fleet, therefore, won’t just help avert a price war once the world gets back on its cruising seriously. This will help to make the carnival as profitable as possible, once that happy day arrives.