Cruise lines are making a comeback. What investors need to know.

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Revenge arrives, and she wears boat shoes and sips a Mai Tai. Vacationers were supposed to make up for missed trips with an epic spree of post-pandemic “revenge trips,” as some industry hopefuls have called it. That has changed with a new wave of Covid.

Now cases are plummeting, vaccination rates are on the rise, vaccines for children are imminent, and savers are fleeing bull markets in everything from index funds to cartoon internet rocks.

Some tour operators are thinking big.


Royal Caribbean Group

(ticker: RCL) just announced an ultimate nine-month global cruise, starting in December 2023 and touching all continents, with over 150 tours from Machu Picchu to the Great Wall. Price with business class and pre-cruise gala flights: approximately $ 61,000 to $ 112,000 per person. Drink deeply and spill a lot – alcohol and laundry service are included.

“Even though we just announced it, bookings have been excellent,” said Richard Fain, who has run Royal since Ronald Reagan was in the White House. When I told him I had never been on a cruise, he quickly berated me and asked for my credit card number, recommending a week-long family cruise with busy schedules for the younger ones. . “Not everyone wants to be with their children every moment of the day,” he said. “I’m not making a value judgment here.” I did not book, but I felt seen.

Few businesses have been hit harder by the pandemic than cruise lines. “A business school has never had a course on running a business with zero income,” says Fain. What you are doing, it seems, is selling your older ships to junkyards, putting the rest on the back burner, and raising a massive amount of money – $ 12 billion for Royal, of which $ 4 billion is dollars he’s still sitting on. Then you are looking for a way to survive.

U.S. cruise lines have been operating for a year under a conditional navigation order from the Centers for Disease Control and Prevention, with numerous safety precautions. These are not binding in Florida, which won a court injunction against the CDC, but


Norwegian Cruise Line Holdings

(NCLH) has secured an injunction against Florida that allows cruise passengers to require proof of vaccination if they choose. Miami is home to the greatest American players:


Carnival

(CCL), Royal and Norwegian, each with multiple brands.

Despite the Florida feud, the relationship between U.S. cruise lines and the CDC has been cooperative, ships are operating safely, and pandemic protocols are expected to become optional after January 15. For now, royal guests are showing proof of vaccination if they are eligible and taking tests to be on the safe side. Once on board, Fain says, the experience is the same as it was two years ago, with a few behind-the-scenes changes, like improved ventilation and the lack of self-service in the buffet lines. “We are safer than walking Main Street in the United States,” says the CEO. “The level of satisfaction of our customers is the highest in our history. “

The experience might be as enjoyable as ever, but right now the financials aren’t. “The restart costs will be heavy as they come back to life,” said Tuna Amobi, stock analyst covering cruise lines for independent research group CFRA. He estimates the monthly cash consumption for Carnival at over $ 500 million, which he values ​​at Hold, and $ 300 million each for Royal and Norwegian. But there is now a path to marked improvement next year, and to or near normalcy by 2023. “At one point, frankly, we thought the B-word, bankruptcy, was a real possibility. for at least one or two of these operators, ”says Amobi. “It’s not on the table now.”

Royal operates 40 out of 61 ships and expects to have 50 by the end of the year. The company missed Wall Street’s third-quarter earnings consensus on Friday, but said future bookings had been strong and cash flow would turn positive by spring. Stocks, at $ 84 recently, are well below their pandemic lows, but may still be cheap. Wall Street forecasts a return to nearly $ 7 in earnings per share by 2023 and $ 9 in 2024, just below the record highs of 2019. At the end of this year, the stock was above $ 133.

I guess I’m curious about cruising, but also conflicted about cruising. This is not a question of anti-mass market snobbery; who died somewhere between roaming dorms around the world in their early 20s and knocking


Disney

parked seven times in my 40s.

But do you see the same passengers every day? Spending time with strangers is like rolling the dice in Benihana, to say nothing of a week on a ship. Then again, the more expensive and larger ships, owned by Royal, are longer than the Eiffel Tower is tall.

Fain says he doesn’t have to organize cruises because passengers do them for him. “People returning from a cruise don’t just say what a great experience it was,” he says. “They are obnoxious about it.” Royal finds that old cruisers are five times more likely to sail again than non-cruisers are for the first time. The Americans are some of the best cruisers in the world, but only 4% have left.

Diesel cruise ships are stupendous carbon offsets, but junkyards have claimed the least efficient ships during the pandemic, and many new ships are using liquefied natural gas and emission reduction systems. In 2023, Royal will launch a hybrid vessel that runs partly on fuel cells and batteries. It aims to operate its first “net zero” emission vessel by 2035 and bring the company to net zero by 2050.

The biggest change in the industry over the past few decades, says Fain, is the number of activities on board: rock climbing, roller coasters, surfing, simulated skydiving, and more. I wondered if the typical cruiser looked like an old one Thurston Howell III of Gilligan Island; it turns out that the average passenger, at 45, is years younger than me.

I leave this new nine-month tour to you, seasoned lido deck walkers. But maybe one of these years I’ll test my sea foot on something shorter.

Write to Jack Hough at [email protected] Follow him on twitter and subscribe to his Barron’s Streetwise podcast.



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