The spectacular boom in the stock market for cruise passengers

(BFM Bourse) – Since the beginning of the year, the major listed groups in the sector have registered very significant growth, benefiting from strong demand with volumes expected to be higher than before the pandemic.

The surge in demand for travel and leisure shows no signs of abating despite persistent inflation and the risk of recession. In Europe, airline stock market performance illustrates this very well: the Stoxx Europe Total Market Airlines index, which summarizes the performance of the sector (with the shares of Air France-KLM, Lufthansa and Wizzair) gains over 35%

since the beginning of the year, much more than the main stock indices.

But of course this great upswing in tourism does not only concern airlines. Another sector that has suffered enormously during the pandemic is exploding on the stock market: cruise operators. Norwegian Cruise Line (which, as the name does not indicate, is based in Miami) has taken 78.4% since the beginning of the year on Wall Street, Carnival (which notably owns Costa and Seabourn) 132% and Royal Caribbean Group 106%.

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Volume that leaves

With such rebounds, there are of course corrective phases. Earlier last week, Carnival’s second-quarter financial results, while above expectations in terms of adjusted net loss, were coolly received by investors, with the stock falling 7.6%, trailing Norwegian Cruise Line (-5%) and Royal Caribbean (-2.5%). Profits occurred, while Carnival, in addition to the results, was particularly disappointed with its third-quarter earnings-per-share outlook. stock.

But the Carnival title, like that of other cruise lines, bounced back strongly. Those three groups entered the Top 10 of the biggest gains in the S&P 500 in the first half, according to a tally by Business Insider.

Because the outlook is much improved for the sector. This is according to figures from the Cruise Lines International Association, the international professional association of cruise lines, for 2023. The amount of cruise passengers is expected to reach 31.5 million this year, or 106% of the level of 2019, the last level. years before the outbreak of the pandemic, which had forced cruise lines to drastically reduce their capacity due to health restrictions. Thus, in 2020 and 2021, the amount of passengers transported was only 19% and 16% of the level in 2019, a percentage that had risen to only 69% in 2022, according to data from the association.

An unfulfilled requirement

Above all, it appears that the “pent-up demand”, that is, the unsatisfied and frustrated demand for travel built up during this period, is only now being reduced among cruise passengers.

According to Bloomberg, this unserved demand for the entire years 2020 to 2022 represented a total of 58 million passengers, of which one can imagine that at least some have postponed their trips. And now fueling bookings and business volumes.

“We knew demand for our business was strong and building, but we were pleasantly surprised at how quickly demand accelerated further, well above historical trends and at higher rates,” he said. said Jason Liberty, CEO of Royal Caribbean, during the company’s quarterly earnings presentation in May.

On this occasion, the group had raised its forecasts for adjusted earnings per stock for the current fiscal year in 2023, and also expected record adjusted gross operating income (Ebitda) and higher than 2019. Much better outlook, while the company has swallowed more than $12 billion in losses between 2020 and 2022. Amounts that are even more colossal at Carnival ( $25 billion), a company admittedly about twice as large based on 2019 revenues ($20.8 billion versus $10.9 billion for Royal Caribbean and $6.5 billion for Norwegian Cruise Line).

Note that while Royal Caribbean and Norwegian Cruise Line expect a return to profit this year, this is not the case for Carnival, which expects a loss of $250 million to $100 million this year.

A sector in debt

To return to demand, it has so far resisted the deterioration of the economic situation. The CEO of Norwegian Cruise Line, Harry Sommer, had also explained in May that even in March, during an ATM crisis that affected the markets and the economy, his company had not recorded any wave of cancellations unusual for the period.

It remains to be seen whether this resilience will hold over the second half of the year and especially next year, when “pent up demand” is likely to run out of steam and the macro economy does not prove particularly encouraging. In addition, it will be necessary to monitor whether the rate hike does not end up worrying investors in a sector crumbling under a mountain of debt (with long-term debt of $21 billion at Royal Caribbean and $32 billion at Carnival). For now, the analysts seem to be quite optimistic. Quoted byThe Wall Street Journal

, JPMorgan recently raised its price targets on the three cruise lines, and also switched to buy on Carnival. The bank’s analysts, in light of their discussions with managers, noted an absence of slowdown in bookings and observed that demand was expanding beyond the cruise faithful to newcomers.

More broadly, according to the consensus, 73% of analysts buy on Royal Caribbean, 55% on Carnival and 44% on Norwegian Cruise Line.

All variations were stopped on Thursday eveningJulien Marion – ©2023 BFM Bourse

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