Cruise Stocks May Never Recover From the Coronavirus

• Cruise ship shares are down around 80% from their all-time highs. These stocks are significantly underperforming the market, even as we enter bear market territory.
• Cruise ships are virtual petri dishes for contagious disease due to their tightly-packed spaces.
• The industry faces a PR nightmare as infected ‘cruise ships of doom’ present some of the worst infection densities outside Wuhan, China.

Cruise ship shares are dramatically underperforming the rest of the market as the coronavirus pandemic sends stock market indices into bear market territory.

Cruise ship stocks led the market down with staggering double-digit capitulations. Wall Street darlings like Royal Caribbean (NYSE: RCL), Carnival Cruises (NYSE: CCL) and Norwegian Cruise Lines (NYSE: NCLH) are sinking like stones as coronavirus fears strike at the heart of a once buoyant business model.

Data by Ycharts

Investors should not mistake these declines for a buying opportunity. Unless governments introduce sweeping bailout packages for the industry, the pain could be just beginning. Cruise stocks may never regain their old valuations.

International Cruises: A Bad Idea Amid the Coronavirus Pandemic

The coronavirus pandemic has spilled out of China to become an international catastrophe. As the global caseload soars above 120,000, governments around the world are advising people to stay at home and limit unnecessary travel — especially by cruise ship.

Cruise ships are being especially targeted because they can be like “coronavirus mills,” according to one Japanese expert.

With so many people from around the world packed into a relatively tight space, infectious disease can spread rapidly on a cruise ship. The Diamond Princess, one of the highest-profile cruise ship outbreaks, reported an infection density higher than the epicenter of the pandemic in Wuhan China.

542 of its 3,500 passengers were confirmed to have the infection.

According to John Hopkins data, 696 coronavirus cases are confirmed on cruise ships. This is the tenth-highest number of total infections in a geographic area, just under Norway, the United States and Germany.

Cruise Ship Stocks Had Been Flying High

Before the coronavirus outbreak, cruise ships had been very lucrative for investors. Royal Caribbean, one of the best performers in the space, saw its share price more than double over the last decade as passenger numbers and revenue grew at a steady clip.

Royal Caribbean posted solid performance over the last decade. | Data by Ycharts

Now, these same stocks are leading the market down into uncharted territory as coronavirus threatens to derail the global economy.

Norwegian Cruise Lines has been hit especially hard, having lost 80% of its entire market cap in 2020 alone. By comparison, the S&P 500 Index is down more than 26% year-to-date.

Princess Cruises, a line of Carnival Cruises, will suspend operations of all 18 of its ships due to the rapidly spreading coronavirus pandemic. This announcement is probably behind much of the weakness we are seeing in these stocks this week.

The market fears that other lines may follow Princess’ lead and suspend operations.

Princess seems to be unusually hard-hit by the disease.

Two of its cruises, the Diamond Princess and the Grand Princess, experienced major coronavirus outbreaks on board. Jan Swartz, the company’s CEO, is just as confused as anyone as to why her company is so affected.

She states the following on YouTube:

We’ve been asked, and we’ve asked ourselves, why COVID-19 seems to be impacting Princess so heavily. We don’t really know

Jan, maybe it’s because cramming over 3,000 people in a tightly-packed space during a viral pandemic is a bad idea? Princess Cruise has made the right decision. It’s up to other cruise companies to follow their lead before they make the next headline.

Will the Industry Ever Recover?

Like all pandemics, the coronavirus will eventually fade away. But the scars it leaves on the cruise industry will take a long time to heal. This has been a PR nightmare for cruise ships. Unlike airlines, which provide a necessary service, cruises are a highly discretionary. These are purchases that people can do without.

It only takes is one infected person to turn a cruise ship into a viral petri dish. With people increasingly aware of the dangers of infectious disease, that may be enough to suppress cruise ship valuations for years to come — even if passenger numbers recover.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.