Covid-19’s effects could leave cruise lines’ recovery dead in the water.
While still down over the past year, shares of Royal Caribbean Group and Norwegian Cruise Line Holdings rose over the past month as investors bet that the negative impact of the variant had finally begun to subside, potentially salvaging the tail end of wave season—the first three months of the year, when cruise lines typically see increased bookings.
But analysts’ recent channel checks and surveys are resoundingly disappointing. With the exception of 2020, when the pandemic first sank in, and the Costa Concordia’s literal sinking in 2012, Truist’s Patrick Scholes said recent sentiment in the industry has rarely been more negative.
At issue are continued costs of the pandemic—both psychological and economic. The Omicron wave hit in December, just as wave season was about to kick off. Cruise review website Cruise Critic says demand picked up in February after a more challenged January and has been improving since. But Mr. Scholes said the start of the year was “so deeply negative" that the rebound has proven to be too little, too late.
A Jefferies survey published this month suggests Omicron is still very much top of mind for would-be travelers. Among about 600 avid cruisers surveyed, more than 40% said they were less likely to cruise since Omicron hit. Meanwhile, about a quarter of respondents said they aren’t considering a near-term cruise, with more than half of those respondents listing Covid-19 concerns as their reason. Roughly two-thirds of cruise ships sailing in U.S. waters right now have reported Covid-19 cases on board, according to the Centers for Disease Control and Prevention.
Jefferies analyst David Katz predicts that the industry will continue to face a prolonged recovery with heightened pandemic-related risk. Truist’s Mr. Scholes says the industry has typically required an 18-month recovery period to come back from significant negative media attention, noting that the Omicron surge reset that psychological clock just as bookings were beginning to recover from their initial pandemic decrease.
New pandemic-related policies seem to be a double-edged sword. While some cruisers have shied away from bookings because of safety concerns, others have balked at vaccination requirements. This is especially true with mass-market cruises, according to Mr. Scholes, since their customers are less likely to be vaccinated. The risk is often that one unvaccinated person can put the kibosh on a whole group trip.
The CDC definition of “fully vaccinated" currently doesn’t include boosters, even for those who are eligible, and the number of ships reporting Covid-19 cases suggests breakthrough infections are common. Of the 106 cruise ships in U.S. waters as of Tuesday, 103 reported 95% of their travelers to be fully vaccinated, according to the CDC’s website.
Another factor that could hamper recovery is the potential for a prolonged war in Ukraine. While UBS analyst Robin Farley highlights the potential benefits for the industry in being “movable assets" with malleable itineraries, nearly half of the respondents in the Jefferies survey said the war has delayed their travel plans.
And even as demand is sagging, costs are adding up. A Jefferies call with an independent cruise consultant shows that challenged labor availability has necessitated added costs to fly in crew members from far away, while supply- chain constraints and inflation are increasing food and consumable costs for cruise lines.
Fuel prices are also rising, and major operators including Carnival don’t appear to have hedged them. Historically, cruise ships have raised prices by instituting fuel surcharges to compensate, but depressed demand seems to be limiting their ability to do that this time around. According to Cruise Critic, current pricing has only risen slightly from March 2020 on average.
Higher-end cruise operators such as Norwegian might have more leverage. CNBC recently called 2022 the year of the “bucket list" trip, with consumers eager to go big and spend big—a trend Expedia called the GOAT, or greatest of all time, travel mind-set. That seems to jibe with recent channel checks. Mr. Scholes said that, over the past eight weeks, he has observed bookings for premium-priced cruises for all future sailings up 20% to 25% versus comparable 2019 levels, while bookings for all sailings have been down more than 50% on the same basis.
Talk about a sinking feeling.
This story has been published from a wire agency feed without modifications to the text
