Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Carnival Corp and the Cruise Industry are doomed

Coronavirus could kill the cruise ship industry and Carnival Corp (NYSE: CCL). For example, Carnival started 2020 with a $51.31 share price on 2 January 2020, that fell to $11.91 on 24 April 2020.

A few of the earliest; and most dramatic, COVID-19 outbreaks hit cruise ships. For instance, four people died on the Holland America Line’s MS Zaandam in early April, Forbes reports. In addition, 200 people on the MS Zaandam reported flu-like symptoms doctors attribute to coronavirus.

Moreover, two passengers died from coronavirus on the Coral Princess on as of April 2, 2020, NBC News reports. At least 12 people on the Coral Princess tested positive for COVID-19.

The Cruise Industry has a Pandemic Problem

Laboratories confirmed over 800 cases of coronavirus on three cruise ships in the first quarter of 2020, the Centers for Disease Control and Prevention (CDC) estimates.

One of the first outbreaks of COVID-19 outside China was on the Diamond Princess, which docked in Japan on 20 January 2020. The CDC estimates 19.2% of the Diamond Princess’s 3,711 passengers and crew caught coronavirus.

The CDC reports 37 Diamond Princess passengers required intensive care because of coronavirus and eight died. Overall, the CDC estimates over 800 people caught coronavirus on two cruise ships, the Grand Princess and the Diamond Princess.

The data shows cruise ships are perfect transmission mechanisms for coronavirus and other diseases. Thus, I think there will be calls to ban cruise ships or bar cruise ships from many harbors.

Did Carnival Corporation Make Money?

Examining Carnival Corp (NYSE: CCL) is an excellent way to sample the cruise industry’s profitability. In detail, Carnival operates 28 ships from America’s coasts.

Carnival was losing money before coronavirus, though its revenues were growing. Stockrow estimates Carnival’s revenues grew at a rate of 2.48% in the quarter ending on 29 February 2020.

However, Carnival reported a -$711 million operating loss and a -$781 million common net loss for that quarter. Overall, Carnival made a $1.268 billion gross profit on revenues of $4.789 billion during that quarter.

Conversely, Carnival generated cash in the last quarter. Carnival reported an operating cash flow of $916 million, a financing cash flow of $1.089 billion, and an ending cash flow of $1.368 billion on 29 February 2020.

Impressively, Carnival had $1.354 billion in cash and short-term investments on 29 February 2020. That number grew from $518 million on 30 November 2019 and $649 million on 28 February 2019.

I think Carnival’s financial numbers show cruise ships were a terrible business before coronavirus. To explain, I do not think cruise ships can make money.

Cruise Ships were a Bubble

I think cruising was a bubble before coronavirus. For instance, Cruise Market Watch estimates there were 314 cruise ships with a capacity to haul 537,000 passengers in 2018.

Specifically, Cruise Market Watch estimates Carnival’s 26 ships had a passenger capacity of 71,000 in 2018. In total, the Cruise Lines International Association (CLIA) forecast 30 million people could take cruises in 2019. The CLIA estimates that number grew from 28.2 million passengers in 2018 and 17.8 passengers in 2009.*

I think these numbers show cruising was a bubble before COVID-19. Operators were so desperate to attract passengers they held gimmick cruises such as pro wrestling and old movie voyages.

Cruise companies resorted to those gimmicks because they cannot attract regular passengers. Thus, the cruise industry was having a hard time filling its ships before coronavirus.

Will Cruise Passengers Return?

I think the cruise industry faces two massive threats in the COVID-19 era. First, many people will be afraid to cruise out of fear of pandemics.

In particular, senior citizens; the cruise industry’s favorite class of passengers, will be afraid to get onboard. Older adults are afraid to cruise because the CDC warns older adults are a higher risk for severe cases of COVID-19. Thus, many older people will be afraid to cruise.

Second, I predict many governments will block cruise ships from entering harbors. Moreover, there will be intense political pressure to keep cruise ships out in many countries.

Thus, cruise ship operators could find many destinations closed to them. Such closures will make cruises harder to sell because most passengers will not want to sail around in circles in the ocean.

Consequently, I predict they will scrap many cruise ships in the next few years. Additionally, I think we will see Carnival Corp (NYSE: CCL) disappear.

Is Carnival Corp a Value Bargain Stock?

Thus, I believe  Mr. Market over valued Carnival Corp (NYSE: CCL) at $11.91 on 24 April 2020. Carnival is worthless because I think it will die.

If you disagree with my prognosis, Carnival could be a great value bargain. To explain, Carnival is cheap, and it generated cash before COVID-19.

 Furthermore, Carnival paid a 50₵ quarterly dividend on 20 February 2020. Overall, credits Carnival with a dividend yield of 17.18%, an annualized payout of $2 on 24 April 2020. Plus, Carnival offered five years of dividend growth.

Thus, Carnival Corp could be a value bargain stock if people forget the effects of COVID-19 fast. However, I think Carnival will die because people will remember coronavirus for decades to come.


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