Shares of major cruise line shares Carnival corporation (NYSE: CCL)(NYSE: CUK), Royal Caribbean (NYSE: RCL), And Norwegian Cruise Line Holdings (NASDAQ: NCLH) Everybody took a bath yesterday – badly. Industry leader Carnival announced it had a net loss of $ 2.9 billion for its most recent quarter, its stock quickly sank 10%, dragging others under its influence.
It was yesterday, though. it is today. And today, both Carnival and Royal Caribbean stocks are bouncing back up 2.7% in trading at 3:25 pm EDT, while Norwegian Cruise is slightly outperforming it – 2.9%.
Why the Are Cruise Stocks Bouncing Back? There is no clear news to explain the rebound – no analyst upgrades or price target increases, for example, nor any positive news out of cruise shares. Nevertheless, here is a theory:
One of Carnival’s shares was torpedoed yesterday, as it announced plans to dispose of a total of 18 ships from its fleet – five more than previously promised. On the one hand, it portrays the scale of the face of the crisis line: the way the CDC advances and permits its no-sale order, more supply than expected (cruise ship) to fulfill (Cruise ship). Resumed from US ports.
To help balance supply with demand, therefore (and also cut its cost of doing business), Carnival is downsizing its fleet much faster than anticipated.
But here’s one thing: While Carnival’s supersized cost cuts illustrate the dangers, it also helps to fix one of the barriers to this industry: over-prosperity.
Because Carnival is cutting its fleet size so much, there will also be capacity reductions in this industry. This will help eliminate oversupply, and help reduce the risk of a price war as Cruise Lines battles for its fair share of the discretionary dollar of vacation once it reopens. In doing so, Carnival essentially “took one for the team”, furthering the day when cruises would once again become a profitable industry.
This is indeed good news for Carnival – and also for Royal Caribbean and Norwegian cruises. If you ask me, this is why these shares are going back today.