Despite their low prices, investors are keeping their distance from cruise lines at the moment, and for good reason. Most cruise ship operators expect their financial problems to continue well throughout the remainder of the year. That’s exactly what Royal Caribbean (NYSE:RCL) said on Friday, with the company warning that it expects more cancellations, further ship delays, as well as large losses throughout the rest of 2020.
More specifically, the company went on to say that it expects to report a net loss in the first quarter of 2020 as well as throughout the rest of the year due to this coronavirus pandemic, which has virtually halted all cruise ship activity. Royal Caribbean had around $2.3 billion in cash by the end of April, but the company has since stated that it is looking for further sources of funding to keep the business afloat.
Royal Caribbean has already suspended its dividend program, like many other companies so far. Additionally, Royal Caribbean cut around 26% of its overall workers while already implementing $3 billion in cost reductions for the year. This includes a 125% company credit for passengers that had previously book cruise trips earlier in the year before the pandemic, as opposed to straight cash refunds, which would stretch the companies already limited cash reserves even more.
Other well-known cruise lines, such as Norwegian Cruise Lines (NYSE:NCLH), have already taken considerable loans. The company announced it had secured an extra $2.4 billion in financing, while another major cruise ship operator, Carnival (NYSE:CCL), stated that it had raised a whopping $6.4 billion in new debt.
While cruise lines have tried to stay optimistic for the most part, stating that operations could resume in a limited state sometime this summer, it doesn’t seem likely that many people would be willing to go on a cruise trip while the pandemic still remains such a big deal. New trips, however, would include social distancing, new disinfection protocols, as well as thorough screening beforehand to confirm that passengers aren’t carrying the virus.
Since the start of the year, cruise lines have lost most of their value. Royal Caribbean has seen its stock tumble more than 60% since 2020 began. While some might argue that these low prices make these stocks a good deal, even some of the best-known value investors in the world aren’t agreeing with this line of logic. If Warren Buffett decided to cut his entire stack in airline companies due to this coronavirus, it is hard to see why cruise lines would be a good deal from a value investing standpoint.
Royal Caribbean Cruises Company Profile
Royal Caribbean is the world’s second-largest cruise company, operating more than 60 ships across six global and partner brands in the cruise vacation industry. Brands the company operates include Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, and Silversea. The company also has a 50% investment in a joint venture that operates TUI Cruises and a 49% stake in Pullmantur, allowing it to compete on the basis of innovation, quality of ships and service, variety of itineraries, choice of destinations, and price. – Warrior Trading News
