The cruise industry has been recovering steadily from the pandemic through continually strong bookings, but stocks held by Carnival Corp and its main rivals keep falling in light of the mounds of debt facing the sector, according to an analyst.
New York-listed Carnival’s customer deposits for 2022 increased $1.4bn during the second quarter to $5.1bn, while booking volumes almost doubled at the same time.
Despite the encouraging numbers, the company’s share price has fallen 57% since the start of the second quarter, reaching $8.59 per share as of early afternoon on Tuesday.
“Certainly in the near term, the performance of the cruise industry stocks has significantly diverged from the performance of the industry,” Tigress Financial Partners analyst Ivan Feinseth told TradeWinds.
“Booking trends in consumers’ willingness to spend on travel remains strong yet the stock price performance especially that of Carnival seems to have a very dire view of the industry’s future.”
Carnival’s share price shows no immediate sign of improving, having dropped 22.4% since the company offered $1bn in common stock at $9.95 per share on 20 July.
The significant issuance boosted Carnival’s number of outstanding shares by 102m to 995m shares.
“The issuance of stock marks a severe 10% dilution of its current equity,” Feinseth said.
The billions of dollars of debt that the cruise sector incurred as a result of the pandemic stand to weigh very heavily upon share performance for some time to come, regardless of strong booking trends, he added.
“The question for the whole industry is how quickly cash flow can ramp up and they can pay down all of the debt they took on,” he said.
Carnival’s debt stood at $35.1bn at the end of this year’s second quarter, while that for Royal Caribbean came in at $20bn at the close of its first quarter.
Norwegian Cruise Line Holdings’ debt amounted to $13.6bn when it finished its first three months of 2022.
Since the second quarter of 2022 began, Royal Caribbean’s shares have plummeted 60.1% to $33.38 as of mid-afternoon on Tuesday. Norwegian’s stock has dropped 47.9% in the same period to $11.33 per share.
But Feinseth remained optimistic despite the falling prices, banking on the sector’s robust booking numbers.
As of 31 March, Royal Caribbean’s customer deposit balance was $3.6bn, up $400m from the fourth quarter of 2021.
Norwegian’s advance ticket sales balance increased by $418m in the first quarter to $2.2n as of 31 March.
“I believe we will see revenue exceed pre-pandemic record levels sometime mid-next year,” Feinseth said.