Shares in larger cruise ships Carnival Corporation (NYSE: CCL)(NYSE: CUK), Royal Caribbean (NYSE: RCL)and Norwegian Cruise Line Holdings (NASDAQ: NCLH) everyone bathed yesterday – the bad kind. After industry leader Carnival announced that it had suffered a net loss of $ 2.9 billion. $ In the most recent quarter, its stock quickly fell 10%, pulling the others down in the wake.
That was yesterday, though. This is today. And today, shares in Carnival and Royal Caribbean are both bouncing back, up 2.7% in 1
Why do cruise stocks bounce back? There is no obvious news explaining the rebound – for example, no analyst upgrades or price increases or any positive news from the cruise stock itself. Here’s still a theory:
One of the reasons carnival stocks were torpedoed yesterday was because it announced plans to dispose of a total of 18 ships from its fleet – five more than previously promised. On the one hand, this illustrates the extent of the face of crisis cruise lines: There is far more supply (cruise ships) than they expect to have demand for (cruise passengers), even after the CDC lifts its non-sailing order and allows cruises to resume from US ports.
To help balance supply with demand (and also reduce the cost of doing business), Carnival is slimming down its fleet much faster than expected.
But here’s the thing: While Carnival’s excess cost savings make the dangers clear, it also helps remove one of the barriers to this industry’s recovery: overcapacity.
As Carnival reduces the size of its fleet so much, the capacity of this industry will also be cut. This will help eliminate oversupply and minimize the risk of a price war breaking out as cruise ships fight for their fair share of vacationing discretionary dollars when the cruise reopens. In this way, Carnival has essentially “taken one to the team” and pulled forward the day when cruising again becomes a profitable industry.
This is actually good news for Carnival – and also for Royal Caribbean and Norwegian Cruise. If you ask me, that’s why these stocks are going up again today.