People arrive to watch Carnival Cruise Line’s new ship Mardi Gras depart on its maiden voyage, a seven-day Caribbean cruise from Port Canaveral, Florida, on July 31, 2021.
Paul Hennessy | Anadolu Agency | Getty Images
Actions Carnival, Norwegian and Royal Caribbean fell this week after the Federal Reserve again increased ratesraising concerns about the huge debt burden of cruise lines and their ability to recover in the broader economic downturn.
The drop in cruise inventory comes as the industry works to recover from the pandemic and bookings increase after US Centers for Disease Control and Prevention lifts COVID-19 advisory from ships.
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“There’s a lot of steps forward, steps back,” Truist analyst Patrick Sholes said. He also noted the debt incurred by cruise lines while their ships were at anchor during the pandemic.
As of Sept. 1, Truist estimates Carnival had $35 billion in debt, Royal Caribbean $25 billion and Norwegian $14 billion. Accordingly, the values of the companies on the stock market are about $11.01 billion, $11.18 billion and $5.61 billion.
The decline came amid a sell-off in the broader market as the three major indexes fell after the Fed’s decision on Wednesday.
Norwegian, Carnival and Royal Caribbean did not respond to a request for comment.
“The reason I think stocks went down a lot on Wednesday was because you were just afraid that companies were going to have to pay more on their debt,” said Deutsche Bank analyst Chris Woronka. Losses of companies persisted all week.
At the same time, Voronka said their incomes may not recover as much in a broader economic downturn, with people spending less on vacations.
This was reported by Bloomberg on Thursday that Royal Caribbean will use high-yield corporate bonds, or “junk bonds,” to help refinance $2 billion in debt due next year.
However, some investors are bullish on debt-ridden cruise lines. Earlier this month, Stifel analyst Steven Veczynski reiterated a buy rating on Norwegian, noting that cruise bookings have grown, particularly for luxury lines that cater to higher-income customers.
Sholes says Norwegian is in a better position with a high proportion of luxury options. But between high interest costs and revenues still recovering, he said none of the cruise lines were “out of the woods” yet.
Carnival shares are down about 55% this year, while Norwegian shares are down about 35% and Royal Caribbean is down about 43%.
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