Entering text into the input field will update the search result below

Betting On Cruises To Recover Faster Than Airlines

Jun. 05, 2020 12:40 PM ETCCL, CUK, DAL, LUV, NCLH, RCL, UAL52 Comments


  • Shares of airlines and cruises have taken beatings throughout the pandemic selloff.
  • Airlines had received government-funded bailouts, while cruises sought funding in notes as Norwegian announced a "going concern" doubt.
  • As travel slowly ramps up, cruises could take on more vacationers and see a recovery before airlines see fleets and passengers return to normal.

Travel has been one of the worst-faring industries to date since the pandemic status was given to coronavirus. Airlines and cruises have arguably been some of the hardest-hit names in the broader industry, with names like Delta (DAL), United (UAL) and Southwest (LUV) down 57%, 69% and 41% YTD, while cruise operators Carnival (CCL), Norwegian (NCLH) and Royal Caribbean (RCL) down 69%, 73% and 61%. Based on share price alone, airlines haven’t outperformed the cruises since mid-March, but took a softer fall during early March and February.

Airlines globally (for the most part) have received state aid/bailouts – to name a few, AirFrance/KLM (OTCPK:AFRAF) looks to get around €11 billion, Delta $5.4 billion so far, Southwest $3.2 billion, United $5 billion, Singapore Airlines (OTCPK:SINGY) S$8.8 billion, and Lufthansa (OTCQX:DLAKF) seeks a deal possibly worth over €10 billion. Ryanair (RYAAY), Qantas (OTCPK:QUBSF), Etihad and China’s three airlines are some who have not received or will not receive aid. Most of the airlines have pointed to travel recovery to pre-pandemic levels occurring near 2023.

The cruise industry sparked much controversy when the $2 trillion stimulus bill was first announced, with the primary question being, why do these cruises get federal money when they incorporated themselves offshore to avoid federal income taxes? The three major operators aren’t necessarily willing to move to incorporation here – Carnival stands with Panama, Norwegian in Bermuda and Royal Caribbean with Liberia, where the tax benefits lie.

Either way, both sectors have been met with high liquidity concerns – Delta and United had been burning through around $100 million a day each, and both expect to reduce cash burn to $40 to $50 million for the second quarter. Norwegian announced on May 5, alongside plans to raise more cash, that there is “substantial doubt about the company’s ability to continue as

This article was written by

Your hub for everything mobility related. Coverage will primarily focus on the automotive industry, namely EV, and will touch upon charging, infrastructure, AV, eVTOL, and other mobility sectors.  Feel free to reach out with questions or comments!

Analyst’s Disclosure: I am/we are long CCL, NCLH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (52)

Building 67 you may be correct, but the longer governors and local officials prevent normal business activity, the harder it gets to snap back. We have just witnessed the biggest gathering of crowds that comprised the protests. The largest of these occurred in states and counties that had barely started to relax rules concerning the small businesses. At minimum, the crowded streets were patently inconsistent with the expressed concern for the people’s health.
Some businesses will hire more employees, like Dunkin Donuts and Dominos and some will disappear. How that nets and with what speed can’t be known at this time. I guess glass half full and glass half empty predictions therefore will abound. I’m on the glass half full side. I truly believe that governors did not let the data guide their actions and incompetently handled the long term care population. Unfortunately some of the same governors, rationalized that the crowds assembled in protest for days after days were to be encouraged, but a barber shop or clothing store should remain closed. More seriously, in some cases the authorities stood by for days and let those very small businesses be destroyed by agitators and looters. In spite of all of that, i’m optimistic. Comparing the comeback speed of the economy now to that of 2008,9 isn’t valid in my view, because the banks and financial institutions were in good shape now and there are no credit freeze or derivatives two and three times removed on questionable home and commercial property loans.
Just like the black swan hit a roaring economy in March and caused an artificial recession caused by government action, it is possible that what I will call a white swan event could supply accelerant to the recovering economy. Currently, developments like a vaccine or therapeutic treatment have been referred to as game changers by health officials and politicians. Certainly if tomorrow those possibilities would be buttressed by R&D evidence, it would raise the plethora of market prognosticator’s index predictions. But along comes an observation from the University of Pittsburgh that their investigations into the virus have yielded that the virus is mutating into a milder, less dangerous form. This observation seems to be consistent with the same bservation coming from Northern Italy and anecdotally being observed in NYC hospitals. The irony is that the virus’ desire to survive yields a mutation that isn’t lethal to its human hosts thus confounding all the so calked’ Scientific experts” and really throws a big biological monkey wrench in the current doom and gloom segment of forecasters.
Bulldog67 profile picture
@Old Wizard

Regardless of a successful vaccine for Covid-19, anyone expecting a quick snap back in the US economy should study employment after the 2008-09 recession. The current level of unemployment is much worse than what we experienced in the last Great Recession. And employment took several years to recover. Many of the jobs lost today will not come back. Remember that small businesses in the US are the major job creators. And many of those have gone / will go out of business, along with the jobs they created.

My understanding is that a number of workers listed as “furloughed” are not in the official unemployment numbers. How many of those workers will actually be returning to jobs? Certainly a good number will not.
CCL and others will turn out to be 2-3 baggers after the stock recovery. Long CCL. Cruise Liners have higher profit margin than airliners during normal times. Airlines are a tough business but LUV is the best operator and most customer friendly.
Clairvoyant Investor profile picture
The market ALWAYS looks ahead at least 6 months - 1yr. Labor Secretary says the US will add back 10 million jobs next month for June jobs report. As the high frequency data comes in daily, the market is already all knowing on what is happening and never gets it wrong. The market is always correct no matter what. The US consumer is releasing pent up demand consistently now! As the market runs higher from here, cruise lines and airlines will run past their 52 week highs. Airlines and cruise lines are outright bargains right now and they have 100% gains ahead of them well before their reach their 52 week highs. Fundamentals are irrelevant as the data points become less bad. Remember, the Fed has trillions available and will induce more as needed. If retail investors would look beyond tommorow and look out 1 year, they would realize that United Airlines will be closer to 52 week high $96 than todays $42. RCL will be back to 52 week high $136, not $70 like today. Try and look ahead 1-2 years and not focus on today's headlines which are yesterdays old news.
OK....because the market can see 1-2 years ahead it sold out like crazy just a few months ago. Right? Is that what you are saying? The “market” consisting mostly of idiots is just as clueless about what will be in a year or two as it is about what will happen in a week or two. Or even dare I say what is really going on at present. Which probably is the really really dumb money piling in whilst the less stupid investors are selling to them and putting their hedges in place.
Bulldog67 profile picture
@Dont Tread on Me

“The market is always correct no matter what.”

I guess the market was correct at the S&P bottom of 2237 on March 23rd?
I guess the market was correct at the S&P top of 3386 on February 19th (just before selling off 34%)?

“As the high frequency data comes in daily, the market is already all knowing on what is happening and never gets it wrong.”

You must be new to the investment world! The market OFTEN gets it wrong due to investor psychology - investors get overly bullish and overly bearish, and thus many times the current level of the market does not adequately reflect the fundamental outlook. I think the current rally is one of those examples where investors have prematurely assumed the “all clear”!

As to the jobs report, I would strongly recommend that you go back and look at the total job losses during and right after the 2008-09 recession. This recession, certainly by job loss measurements, is far worse that the 08-09 period. It took years for job growth to overcome all the lost jobs in the past recession. Anyone who expects employment back to pre-Covid-19 levels within a year is just not looking at real life.
Clairvoyant Investor profile picture
Confirm yes sir the market is always right no matter what. Forward-looking is what we need to be not rear view mirror looking
Deja Vu profile picture
Thanks for the article. I disagree entirely with your thesis because putting that many strangers on a ship is guaranteed to cause outbreaks even if they test each passenger prior to sailing (since the testing won't capture recent infections). There will be no ports stupid/desperate enough to allow anyone to disembark for the day. And when the first Diamond Princess Redux is floating around in agony, the industry will shut down for good. And no, Trump doesn't have any vaccines stored in coolers. No one has ever found a vaccine for a coronavirus. The vaccines are as real as the Hydroxychloroquine "gamechanger", the Gilead Remdesivir "Cure" and of course the Mother of all Fakes the Moderna "Vaccine".

But you did remind me of the cruise lines. Thanks. Tomorrow I'll be buying 500 to a 1000 Jan 21 puts.
See you on the street corner
Deja Vu profile picture
Sorry, I don't encourage panhandlers.
Airlines as of late have been strong into the close when the indexes have been up into strong close green days. Friday however the airlines sold off in a constant steady decline through outthe day. United was up $8-9/share early in the day.... profit taking will continue into this week. They might pop Monday a little but, I expect them to sell off with the cruise lines. I shorted UAL, CCL and SAVE mid day friday. Thet would have held up if the big money was confident it would continue. Short term, they need a break
Bulldog67 profile picture

Good comment. Both the cruise lines and airlines have had substantial rallies that have had nothing to do with their fundamentals. In fact the fundamentals continue to worsen.

Would expect to see profit taking soon - probably this week!
I hope you didn’t bet too much, airlines are already recovering faster than the big doom projections. American has announced that in July they will be flying 55% of their fleet. I believe airlines will be close to 75% capacity by Christmas. It is doubtful that the cruise industry will recover that fast. I do believe that the cruise industry will recover next year. How costs and occupancy turns out is hard to forecast, but the pent up desire to cruise and travel will overcome the fear of infection. As another commenter has stated, much of the cruising public uses airlines to get to cruise ports. By that dependency, the airlines will further recover with the recovering of the cruise industry.
I feel that in the next 2-3 years airlines will be in a much better place. I just think the smart money is gonna take profits based on the trading activity. I would be pushing the sell button, not the buy after the recent run
MAYHAWK profile picture
I am curious, how will they get to the ports for departure? Walk, Uber, drive their car and park it, any answers? lmao
Interesting to see people keep talking of second wave covid infections. It never happens: the way causing the first infection pandemic via doctors, who caught the virus without protection and awareness, spreading it among most vulnerables in hospitals, an arguably main reason for heavy headline tolls from covid19. 
Moreover, given its relatively less severe mortality ratio, complete lockdown turns out to be too expensive to be an effective way of containing the virus spread and therefore to gain support for reinstallation.

If you still believe in ‘this time is really different indeed’, a mentality keeping show up each crisis, you will see lifetime chance slip away from your hands forever. Again, investment thesis is about future and none evidence will be conclusive, and you can choose to wait until storms are over, and of course risk premium goes with it. X
With all of the time that the cruise lines have been at port docked, I believe they have a game plan now on how to implement at least a 75% capacity of bookings per ship. By August we will see how this goes for Carnival after their first launch. I see a rebound more so for the cruises then airlines. Social distancing is more viable. The ventilation system they talk about with the airlines don't seem to me work enough to stop the spread of the virus. Just my two cents though. I will bank on Carnival on this one.
Thank you for the details. While cautions against the virus will be on mind for quite a big number of people, those young healthy would take the lead of getting back to normal life, which will feed back to the general public, a positive self reinforcing process.

If people have no problem taking to street for a political cause even in face of covid, it shows at least some of the public are acknowledging the virus isn’t so deadly to justify against going out. Life has a lot of wonderful things holding out for us, only if we are bold enough to reach for them.

I am more than happy to jump on a cruise ship if social distancing can be practically done. Am Long CCL, RCL.
I sold ccl today with a $6 profit per share. Good luck to everyone.
T/A = price pattern retrace for NCLH to fill the gap up opening today from $19.61 to $24.21 is text book. There are 4 indicator patterns that are confirming start of down retrace and a very extended BB.I am long the stock from $10/11.and believe it will move above $30.+ this year..Do your DD of t/a before you buy next week..TIA for excellent DD research posting by knowledgeable followers.
Bulldog67 profile picture
What is T/A? What is TIA? Sounds like you believe NCLH will fill yesterday’s gap on the downside, then build a long base, then rally to $30+.

Am I reading your post correctly?
kbaba profile picture
What is T/A? (Technical analysis, AKA stock astrology)

What is TIA? (Thanks in advance)
I’ll be curious to see how the cruise industry will fair with customers venturing back to leisure travel whilst the virus is still circulating. A second lockdown will be enough to take them into bankruptcy.
Bulldog67 profile picture
What if the virus breaks out again on one of the earlier cruises? That would be a disaster for all the cruise lines.
kbaba profile picture
@Bulldog67 That could be the trap, if indeed (maybe) some cruises get off in August but the fall wave hits as expected in the northern hemisphere, another round of ghost ships would be the last straw
Bulldog67 profile picture

Yes, if that occurs, it will be the last straw for the cruise lines. Given the amount of debt they have already raised, and given how leveraged their B/S’s are, raising more debt is going to be a real challenge.

You, or someone else, recently raised the question of an equity raise now that the stocks have bounced so. If CCL, RCL, and NCLH are smart, they will sell equity at current prices to shore up the B/S and provide more liquidity in case another wave (couldn’t help myself) of Covid-19 hits.
Jetman48 profile picture
Problem is most people have mentally moved on like the virus was yesterday. Fact is, yesterday saw the largest confirmed cases ever! 130,000+. Also, here in Florida same thing, highest number ever yesterday. I predict when people wake up to the sad reality that this ain't over, CCL is toast.
I am short via long dated puts.
number of cases growing is normal as testing has become more widely used. However looking at Europe and most of Asia and Africa: the epidemy is over. Deaths always occur much later and now zero death in Spain for the first time. Here in Germany but in France as well, despite reopening much before the US, contagion is down everywhere/ just a few clusters. We also noticed that in the 93 department (highest density suburb of Paris), despite lockdowns never respected cases and deaths followed the same path as elsewhere.
kbaba profile picture
Record cases in many places, some are famous cruise destinations like the Caribbean. Nobody thinks the epidemic is over, still 1000 deaths a day in the US, 20,000 new cases a day in the US. Fantasy thinking eventually hits reality
TAS profile picture
We have been taking cruises since 1984 (the first was the Norwegian NORWAY, the old SS France). Our last one was this past December. Cruising is much different than back in the day. It has become just one more institutional hunk of travel with up charges, not so good meals and packed to the rafters with many folks who don't show either refinement or common courtesy. Call it a sense of having some class, which is sorely lacking in our present day.

I will still travel, and enjoy the wide expanse of ocean and that rare place on board where I can experience some peace and solace. But the novel experiences of cruises pre-2010 remain in my mind the best ever. Now only the super luxury cruise lines proffer that experience, where one is more apt to leave the ship more relaxed.....a true vacation.

Yes, the industry will recover.
Thisgirllovestofish profile picture
You are so right. My parents used to take me on cruises back in the late 80s and 90s when I was younger- everyone always dressed up for dinner and it was all around a different class of people. Went on one last summer and felt like I was stuck on a floating trailer park.
Love your profile pic 😂
Agree/ selecting the right cruise line is critical. Carnival, RC, NCL not that good, really. Princess, ok but not what they used to be. Celebrity, pretty good. HA, the geriatric group. Windstar, a cut above. Will look at the Oceanic types next.
Clairvoyant Investor profile picture
Market algos have already established a trend. First it was tech, Industrials and energy next, airlines are flying right now next up Cruise Lines and Banks. Great huge irrational parabolic pops for the cruise lines are next the way we are seeing right now for the airlines.
kbaba profile picture
"As the current situation of reopening remains underway, a secondary grab from bailouts and debt markets does not look necessary as liquidity concerns have eased, although total debt in the industries does remain high."

RCL just raised another round of 2 billion yesterday!

Some flaws, I'd wager than many if not most people fly to the port of their cruise departure so it's not a cruise versus airline question,

BIG one! at this moment CCL is trading at about $22.50. Given it's share dilution and new interest burden on it's bonds, that's basically equivalent to $44 on a earning per share basis. That's substantially what CCL was trading for when everything was great before the virus hit, facing no liability, no restrictions, no costs to make things safer, no rate cuts. That's madness! CCL has already recovered to old levels, it's just that people haven't considered all the new shares it issued and its high cost debt.

and demand means nothing if ports don't let you sail. Canada just extended its no sail until the end of October (and for Canada, that means not until next year) and CCL subsidiaries this week announced longer suspensions of sailing as well. At least the airlines are flying, cruises are still dead in the water and haven't even repatriated 10s of thousands of employees.

So, taking CCL for example, how is ANY upside justifiable at all from these levels outside pure enthusiasm once debt and dilution are considered?
Mobility Matters Research profile picture
@kbaba I originally wrote this article over a week ago, when CCL was near 15-16; nothing I could have done to change the fact that it was just published now
kbaba profile picture
@Damien Robbins Fair enough, do today's prices influence your outlook for the cruise sector?
Mobility Matters Research profile picture
@kbaba I do think it’s been a strong run in both and at these levels could be where we might see some consolidation (throughout the low/mid $20 range depending on next week) assuming there’s no major changes with reopening (like a second lockdown).
haoleboy1967 profile picture
The difference for me is in the "sell price". Airlines pricing isnt that cheap and wont be - but cruises look super super cheap - so the cruise lines are having to discount a ton more

But what do I know in this casino - robinhood - fed pumping market
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.