Why Carnival Corporation stock broke today


What happened

Actions of Carnival Society (NYSE: CCL) surged early in Monday’s session on a pair of positive news. As CruiseIndustryNews.com reported on Sunday, “The occupancy of cruise ships [are] on the rise at Carnival “, with the new Mardi Gras Carnival, for example, which shows 85% occupancy on its cruises” around the Caribbean “.

Shares of the cruise operator rose 2.6% through 11:30 a.m. EDT Monday in response.

Image source: Getty Images.

So what

Mardi Gras isn’t the only Carnival ship to sail with almost a full boat, either. “Carnival Cruise Line [is] says they have increased occupancies as ships are returned to service, the crew are getting used to new protocols and demand continues to increase for cruise vacations, ”CIN reports, and the company is on on track to put 15 ships of this brand – with 50,000 berths on board – back into service by the end of this month.

And maybe that shouldn’t be surprising.

Although the coronavirus pandemic is far from over (as of Wednesday, Johns Hopkins University reported nearly 100,000 new cases of COVID-19 in the United States), The Washington Post said on Sunday that the pandemic “appears to be running out of steam” and that the number of infections in October was “less than half the number in August”. As the coronavirus moves from a pandemic to an endemic disease, “it doesn’t stop. We just stop worrying about it. Or we care a lot less,” commented Johns Hopkins epidemiologist Jennifer Nuzzo. And that seems to be the way it is.

“The United States will soon reopen land borders to vaccinated visitors,” reports the To post, “and lift several international travel restrictions.” Air travel is “not too far from pre-pandemic travel levels.”

Now what

So it makes sense that the return of travel will see a return in cruise ship traffic at companies like Carnival and its peers. As the To post opines: “The United States has entered a new phase of the pandemic in which people adapt to the persistent presence of an endemic but usually non-lethal pathogen. They really have no choice. The virus does not. will not go away. “

That being said, before you dive back into cruise stocks, consider a few other things that don’t go away. Carnival’s debt is one of them. Before the pandemic hit, Carnival was sailing high with less than $ 10 billion in long-term debt on its books, according to historical data from S&P Global Market Intelligence. Two years later, Carnival is drowning in debt of $ 26.8 billion.

The higher costs are another. Carnival now has an entire web page devoted to describing its policies on face masks, social distancing and other restrictions brought on by the pandemic, the application of which will naturally increase the costs of operating the business. . It remains to be seen how profitable Carnival can be under the new regime, even with “increasing occupations” for its ships, but I would bet big money the company will be less profitable after the pandemic than it was. before.

Attention investor.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.