Cruise Industry Keeps Calm and Sails On

The cruise giant issued a business update on Monday for the quarter ended Nov. 30. It held a number of positive data points for investors hopeful that the industry can continue to endure rough waters. Onboard revenue per passenger day was up 4% in the period relative to 2019 levels. That helped temper the company’s cash burn, which the company said came in better than expected. Carnival also said it is approaching 90% occupancy levels in the month of December with cumulative advanced bookings for the second half of 2022 and first half of 2023 at the higher end of historical ranges, and at higher prices compared with 2019 sailings.

But it certainly isn’t all smooth sailing: Carnival noted that it has logged a negative impact on bookings related to near-term sailings as a result of the Omicron variant over the past few weeks. In addition to the fact that the variant may be even more transmissible than Delta, cruisers have good reason for caution. Nearly 50 people on board a Royal Caribbean Group RCL 5.38% ship which just docked in Miami have tested positive for Covid-19, even though 95% of passengers on board that ship were vaccinated, according to the company. (Children under 12 didn’t need to be vaccinated to sail on that ship.) Norwegian Cruise Line Holdings NCLH 6.99% also recently reported Covid-19 cases on one of its ships, despite the company’s vaccine requirement for everyone on board its ships, regardless of age.

Royal Caribbean said it has no plans to cancel any coming cruises. Carnival, too, seems determined to press on with its re-entry efforts. The company said Monday in its business update it planned to have 57 ships in service by the end of the month—representing 67% of its berth capacity—with 100% of its berth capacity in service by the end of June 2022.

Meanwhile, the Centers for Disease Control and Prevention’s website showed 40 cruise ships operating or planning to operate in U.S. waters that have reported cases of Covid-19 as of Monday. Carnival, Norwegian and Royal Caribbean all operate ships on that list, though far more of Royal Caribbean’s ships appear on it than its competitors’, with 19 total ships having reported cases. Back in October, Royal Caribbean said it expected to have 50 of 61 ships back in service across its five brands by the end of the year, representing almost 100% of its core itineraries.

Carnival said in a statement for this column it has enhanced health and safety protocols on its ships, and a panel of science and medical experts, in addition to health authorities around the globe, continue to inform and advise its brands regularly. A spokesperson for the company said that, given the industry’s record of successfully sailing millions of guests during the pandemic with enhanced health and safety protocols, renewed CDC shutdowns would be unlikely and unnecessary. A spokesperson for Royal Caribbean said the company’s safety and security protocols, including contact tracing, have worked well and that it would continue to adjust its measures as needed.

Carnival said that before the pandemic, it sailed more than 12 million guests a year. Today, occupancy is still largely limited industrywide on ships already in service, but historically, major cruise lines have operated at occupancy over 100%. From 2017 to 2019, for example, Royal Caribbean enjoyed occupancy of more than 108%, according to FactSet. Carnival said occupancy of more than 100% can be achieved by additional berths being made available per cabin.

Both an increased number of ships in service and increased occupancy on those ships can help bolster profits. Carnival, for example, has reported losses on the basis of adjusted earnings before interest, taxes, depreciation and amortization for the past seven quarters, but Wall Street is forecasting it will swing to a profit on that basis in the current quarter.

Cruise lines may not be too publicly concerned about current Covid-19 case reports sinking their recovery, and booking trends show die-hard cruisers aren’t either. But investors may want to at least consider how much submerged ice could lie ahead.

Write to Laura Forman at [email protected]