Posted on 07/19/2021 12:46:27 PM PDT by Capt. Tom
Carnival Is Caught in a High-Stakes Contest It Might Not Win A pandemic conundrum puts CCL stock in a bad place
If there was a dubious competition for which blue chip suffered the most from the novel coronavirus pandemic, Carnival (NYSE:CCL) stock would be right up there.
Indeed, it was the Diamond Princess cruise ship — under the broad Carnival umbrella — that became the face of the global crisis.
Either way, it was a godsend for CCL stock that cruising received the green light to resume operations, however mitigated.
Near the end of 2020 to early June of this year, CCL stock gained over 154% and at the time, for darn good reason.
Finally, after several months of vigorous research and development, the biotechnology/pharmaceutical sector forwarded clinically proven vaccines. Following a rough start, the vaccine rollout began in earnest.
Moreover, many American consumers — particularly the higher-wage-earning ones — were financially healthier than one might presume at the start of the crisis.
With work-from-home measures facilitating savings on long commutes to government stimulus checks, several folks were sitting on a pile of cash.
Add into the mix the concept of “revenge shopping” — that is, buying products and participating in activities with gusto given that Covid-19 denied such consumption last year — served to benefit CCL stock.
Life is short and Americans want to go on vacation now. Naturally, this sentiment boded well for Carnival and the rest of the cruise liners.
However, there’s one major sticking point. According to CBSNews.com:
Carnival and other cruise lines were granted permission by the CDC [Centers for Disease Control and Prevention] in April to resume sailing in U.S. waters by mid-summer so long as 95% of customers and 98% of crew are vaccinated against COVID-19. However, Florida has a law prohibiting companies from requiring that customers be vaccinated against COVID-19.
So close and yet so far.
Proposed Solution Might Not Pan out for CCL Stock To work around this situation, the company recently announced a rule where unvaccinated passengers who want to board a Carnival-owned cruise ship must first purchase a travel insurance policy worth at least $10,000.
“The insurance requirement takes effect July 31 and applies to excursions leaving from Florida, Carnival said on its booking website. Carnival has four Florida ports, in Jacksonville, Miami, Orlando and Tampa.”
Unfortunately, every indication suggests that the workaround won’t work for CCL stock. For one thing, shares have been hemorrhaging market value since the June 8 session. Further, CCL has been pinging red ink since the latest company announcement was made.
Of course, one of the major impediments here is that customers purchasing insurance policies won’t have a direct impact on Carnival’s top or bottom line.
The new restrictions actually impose headwinds on the company’s financials. An analysis by LendingTree suggests that the policy may add $100 to $200 per person.
If that wasn’t bad enough, the added cost is disproportionately troubling for CCL stock and its ilk.
Recently, cruise ships have attracted two demographics: older people (retirees) and younger people seeking superior value-for-dollar experiences. Both groups, while near the opposite ends of the age spectrum, have one factor in common: the cost basis.
You add a hundred or two to the total bill and that’s not going to sit well with your target audience.
For instance, the average per-passenger, per-day cruise expense is around $214. So you’re really talking about adding a day’s worth of expenses for something as un-fun as an insurance policy.
But here’s the problem: I don’t think health authorities or the cruise ship industry has any choice but to demand something from their passengers regarding Covid mitigation.
Yeah, it’s a pain for certain passengers but one more incident and that could be all she wrote for CCL stock and the whole cruise shipping industry.
Better to Wait out the Volatility Personally, it’s hard to see how this circumstance could end well for CCL stock. Both sides — the pro- and anti-vaccination crowds — have strong opinions about their perspectives. As well, state legislators are sensitive about federal agencies overstepping their powers.
At this point, the only thing all parties can do is to agree to disagree. But that kind of armistice is exactly the ambiguity that Carnival and the shipping industry don’t need.
The issue, though, is that the entities participating in the politics of the matter are too vested in their position. And that makes me worried about CCL stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Another investor take on CARNIVAL.
https://www.fool.com/investing/2021/07/07/why-carnival-stock-dropped-again-today/
Sad to think that these clown could have a viable industry but want politics instead.
IMO those judges over the weekend threw the cruise lines a big life preserver. Cruise lines can ill afford a major covid breakout on one of their voyages and would generally prefer to have as many crew and passengers vaccinated as possible - without playing referee with extra insurance charges and other disincentives. The ban on “vaccine passports” by DeSantis and others made everything a lot more difficult for the cruise lines. It’s a shame this has become such a political football.
Meanwhile this is a cruise cruise related thread on free republic so I look forward to reading all the ad hominem anti-cruise comments (“floating petri-dish” blah blah blah)…
“While it seems clear why investors have decided to sell off the stock ... the same catalyst could also be a reason to buy it.”
If I believed that cruising ever will return as we once knew it, I’d buy Carnival stock low. For stockholders, there are benefits for them while cruising if you hold over a certain amount of shares. Sadly, I don’t think it would pay off in the end because it’s doubtful we’ll ever cruise again.
“Carnival has four Florida ports, in Jacksonville, Miami, Orlando and Tampa.”
Carnival has a port in Orlando?
It's their second largest inland port behind Salt Lake City.
nice!
LOL!
You bring up an interesting point. If cruise lines operated under DeSantis’ ban of proof-of-vaccination, you suggest that they could have done this by “spreading the risk” with insurers.
I’m not so sure that’s a bad idea. Right now, the individual is expected to take all if the risk with both the virus, itself, and this hastily contrived and untested vaccine.
I believe that insurers have been largely sitting this out, or I certainly haven’t heard of insurance adaptations to COVID or the vaccine. I can’t imagine that insurers want to cover ramifications of the vaccine.
Maybe it would have been a good idea to see cruising pick back up DeSantis’ way, since the vaccine is its own political football.
“If cruise lines operated under DeSantis’ ban of proof-of-vaccination, you suggest that they could have done this by “spreading the risk” with insurers.”
———————-
What I was referring to was the Royal Caribbean strategy for dealing with the DeSantis et al edicts by requiring passengers to purchase expensive health insurance policies. Presumably this would discourage non-vaccinated passengers by increasing their net price to cruise- maybe $700 per cruise for non-vaccinateds according to one report I saw.
Yuck! That doesn’t sound like much of a solution.
I would think the cruise lines could secure better insurance rates than individual passengers. The Diamond Princess has to have impacted their insurance, in any event, and it appears already that vaccination will be no guarantee against a repeat.
$149 for cruise rates under $1,800... $189 for those over $1,800...
I have posted the final few lines from Florida law here. Those clearly state that corporations can follow government guide lines with respect to vaccination rules. In other words Florida law allows Carnival and others to follow dictate from CDC.
“The company recently announced a rule where unvaccinated passengers who want to board a Carnival-owned cruise ship must first purchase a travel insurance policy worth at least $10,000.”
***
We always buy travel insurance because we witnessed a passenger being airlifted off the ship for a medical emergency. We heard that can cost well over $25,000.
We buy https://www.allianztravelinsurance.com/
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