Why Norwegian Cruise, Carnival Corporation, and Royal Caribbean Stocks All Just Slumped

What happened

On Nov. 1, 2020, the U.S. Centers for Disease Control and Prevention’s no-sail order ended.

Prior to that, on Friday, Oct. 30, the CDC announced a new “framework for conditional sailing order” to guide cruise lines as they prepare to resume carrying passengers to sea. Investors’ immediate reaction to the news was positive, and cruise ship stocks jumped on Friday. But today in early trading, shares of Norwegian Cruise Line Holdings (NASDAQ:NCLH) stock are down 4.5%, Carnival (NYSE:CCL) (NYSE:CUK) shares have shed 2.2%, and even Royal Caribbean (NYSE:RCL) stock is off 1.1%.    

3 cruise liner ships lined up in port

One of these three cruise line companies just suspended cruises again. Expect the others to follow. Image source: Getty Images.

So what

Why the sudden change in sentiment? The CDC’s permission to resume cruising comes with a boatload of caveats and provisos. First and foremost: the requirement that cruise lines not, in fact, resume cruising immediately.

Careful reading of the CDC’s latest missive confirms that cruise companies must:

  • Prepare “adequate health and safety protections for crew members”
  • Set up “laboratory capacity to test future passengers”
  • Conduct a series of “simulated voyages”
  • Seek and obtain “COVID-19 Conditional Sailing Certificates” before letting any passengers get back on board their ships.

Only then may a cruise line resume cruising, and even then, cruise trips will be limited to no more than seven days in duration.

Now what

Responding to the specifics of the CDC’s ruling, this morning Norwegian Cruise Line Holdings announced that it is extending its suspension of voyages through at least the end of this year.  

Naturally, Norwegian Cruise Line Holdings stock is the stock going down the most in response to this news. But given the broad and universal nature of the CDC’s new rules, the simple fact of the matter is that it’s going to hobble operations at Carnival and Royal Caribbean as well — and no one’s going to be doing much cruising for the next several weeks, and perhaps months.

Expect the selling to continue — and to spread.

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