Cruise Stocks Sail Higher As Investors Continue To Brush Off Omicron Fears

Topline

Along with other travel-related stocks, shares of major cruise lines have recently staged a comeback and led a market surge on Wednesday, as investor concerns about the omicron variant abate amid news that vaccines are effective against it.

Shares of Carnival, Norwegian and Royal Caribbean all continued to surge.

Lynne Sladky/ASSOCIATED PRESS

Key Facts

Big cruise operators saw another day of solid gains, with Norwegian Cruise Line rising 8.2%, Carnival 5.5% and Royal Caribbean Group 5.2%.

While initial concerns about omicron first sparked a steep selloff in late November, travel-related stocks like cruises have now led the subsequent market rebound as investors grow less fearful about the severity of the new variant.

Markets also are betting omicron won’t be so bad amid reports it causes milder symptoms than feared, with the nation’s top infectious disease expert, Dr Anthony Fauci, saying recently initial data was “encouraging.”

Despite the recent rally, cruise stocks have somewhat struggled this year, with shares of all three major operators still in the red for 2021 (compared to a 26% gain for the benchmark S&P 500 index).

While Norwegian, Carnival and Royal Caribbean took massive losses during pandemic shutdowns, quarterly revenue has jumped up as sailing has slowly resumed—though costs remain high across the board for all three operators.

Carnival and Norwegian are both predicting profitability in 2022—boosted by bookings returning to prepandemic levels—but it won’t all be smooth sailing if the omicron variant drives another surge in global coronavirus cases and travel restrictions.

Tangent:

A recent note from Truist Securities showed that concerns related to the ongoing pandemic has caused major cruise operators like Carnival and Royal Caribbean to reduce ticket prices for travel in the first half of 2022.

What To Watch For:

With the ongoing economic recovery remaining strong, consumer behavior surrounding travel should continue to “return to normal over the next year,” according to a recent note from Morningstar analyst Jaime Katz. Not only will that restore “positive profits” to major cruise operators, but fleet redeployments are “well under way” and that positive momentum should carry into 2022 as customers continue to return to the seas, she says.

Surprising Fact:

Customers are still taking cruises despite recent Covid outbreaks. At least 17 people aboard a Norwegian Cruise Line ship in New Orleans tested positive for coronavirus, the CDC confirmed Tuesday, with one “probable case” of omicron. The guests who tested positive were sent home to self-isolate while Norwegian’s ship in New Orleans set sail on another scheduled cruise—with the company offering refunds to any customers who want to cancel.

Key Background:

Cruise stocks, along with other companies linked to the economic recovery—including airlines, casinos and other travel-related stocks—have led the recent stock market rebound since last week. Before the recent rally, all three major operators had seen shares fall since early October and remain down for the year.