People come out to watch the new Carnival Cruise Line Mardi Gras ship on its maiden voyage, a seven-day Caribbean cruise from Port Canaveral, Florida, on July 31, 2021.
Paul Hennessey | Anadolu Agency | Getty Images
Shares of Carnival, Norwegian and Royal Caribbean fell this week after the Federal Reserve hiked rates again, raising concerns about cruise lines’ huge debt loads and their ability to recover in a deeper economic downturn. wide.
The decline in cruise stocks comes as the industry struggles to recover from the pandemic, with bookings surging after the US Centers for Disease Control and Prevention lifted Covid-19 guidelines from ships.
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“There’s a lot of one step forward, one step back,” said Truist analyst Patrick Scholes. He also noted the debt accumulated by cruise lines while their ships were anchored during the pandemic.
As of September 1, Truist estimates that Carnival holds $35 billion in debt, Royal Caribbean $25 billion and Norwegian $14 billion. Respectively, the companies’ stock market values are approximately $11.01 billion, $11.18 billion, and $5.61 billion.
The declines came on a sell-off in the broader market as all three major indices have been battered since the Fed’s decision on Wednesday.
Norwegian, Carnival and Royal Caribbean did not respond to request for comment.
“The reason stocks, in my opinion, fell a lot on Wednesday is because you were concerned that companies might have to pay more for their debt,” said Deutsche Bank analyst Chris Woronka. Corporate losses persisted throughout the week.
At the same time, Woronka said their incomes may not recover as strongly in a broader economic downturn if people spend less on leisure.
On Thursday, Bloomberg reported that Royal Caribbean would use high-yield corporate bonds, or junk bonds, to help refinance $2 billion in debt due next year.
Still, some investors have been optimistic about indebted cruise lines. Earlier this month, Stifel analyst Steven Wieczynski reiterated a buy rating for Norwegian, noting that cruise bookings have increased, especially for luxury lines that cater to income customers. raised.
Scholes says Norwegian is best positioned with a high proportion of luxury options. But between high interest charges and revenue 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%.