The cruise industry will feel ill effects from the Trump administration’s ban on US sailings to Cuba over the coming months.
According to analysts, the “Big Three” Miami-based cruiseship owners — Carnival Corp, Royal Caribbean Cruises and Norwegian Cruise Line Holdings — will be hit by lost revenue on cancelled cruises and expenditure on keeping their customers happy.
The ban prohibiting “people-to-people” travel to the island was introduced by the US Department of the Treasury on 5 June.
“It comes down to the fact that you essentially lose all the revenues associated with those sailings but unfortunately you don’t lose all of the expenses, especially on the labour side,” Deutsche Bank analyst Chris Woronka told TradeWinds.
The Trump administration put the kibosh on cruises to Cuba in response to the ruling Communist Party’s support for the Maduro regime in Venezuela.
The sudden ban forced operators to assume heavy refund and rebooking costs that will put a dampener on future earnings, the analyst explained.
“These were premium-priced itineraries with margins above the company-wide average,” Woronka said.
He added they will also likely face additional costs in terms of sales and marketing, establishing new routes and dry dockings.
However, Woronka still has a hold rating on Carnival Corp and buy ratings on Royal Caribbean Cruises and Norwegian as he believes there is hope on the horizon.
'Near-term impact'
“In reality, some of this impact should reverse next year when we cycle the implementation of the ban, so there is going to be more of a near-term impact,” he said.
Tigress Financial Partners analyst Ivan Feinseth said that as the smallest of the Big Three players the ban may hurt Norwegian the most, adding that Cuba is a premium destination that enhances overall Caribbean revenue.
“As far as my investment outlook, I think the weakness in the cruise stocks, especially Norwegian, is a buying opportunity,” he said.
Feinseth gives all three companies a buy rating.
Buckingham Research Group recently trimmed Norwegian’s target price to $56 from $77 and lowered the stock, which trades as NCLH, from accumulate to neutral, while maintaining careful outlook.
“NCLH [Norwegian] is a great story but the loss of Cuba hurts,” analyst Daniel McKenzie wrote in a recent note to clients.
Royal Caribbean forecasts a $0.25 to $0.35 hit to this year’s earnings per share, while Norwegian expects a fall of somewhere between $0.35 and $0.45.
Carnival has not put out an outlook yet, saying it is in a “quiet period” until it posts its second quarter earnings later this month.
