Cruise stocks may face trouble as demand ‘seems to be eroding’: BofA

The demand for cruise vacations may be weakening as high levels of inflation, the ongoing COVID-19 pandemic, and a slowing economy weigh on consumer purchase decisions.

Royal Caribbean, Norwegian Cruise Line, and Carnival all saw capacity-weighted sequential ticket pricing declines from May to June, according to new data from BofA Global Research. Price declines ranged from 1% to 3% compared to May, with Carnival seeing the largest drop (2.6%).

The pricing softness looks to be extending into 2023 and 2024, BofA noted, as ticket pricing for all three cruise lines fell 2.6% on average for 2024 in the latest survey.

“The strong booked position cited by most cruise lines seems to be eroding based on this data, and we expect this to be the key topic of discussion when Carnival reports earnings later this month,” BofA researchers stated. “We view this as more specific to the cruise industry than a larger read to the leisure consumer given further COVID pressures (testing still required), continued ramp up in cruise capacity, and likely some difficulty attracting the ‘new to cruise’ consumer. This drives our more cautious stance on cruise stocks.”

BofA has neutral ratings on shares of Carnival and Norwegian along with an underperform rating on Royal Caribbean.

The three main publicly traded cruise stocks have fallen an average of 30% year to date as traders view the industry’s recovery from the pandemic skeptically.

To be sure, inflation may be doing its part to crimp demand for an often pricey cruise vacation. And cruise vacations have gotten costlier as the companies look to pass through their own inflation in areas such as labor and fuel to travel goers.

The cruise ship Borealis navigates on the river Mersey, as Storm Barra hit the UK and Ireland on December 8, 2021. (Photo by Peter Byrne/PA Images via Getty Images)

Four out of five people in a new survey from Outdoorsy found those with summer travel budgets have seen plans hurt by inflation, and about 72% of those polled have had to dip into their vacation budget to make ends meet elsewhere.

Carnival CEO Arnold Donald recently told Yahoo Finance Live that consumer spending onboard the ships remains very strong despite higher prices for amenities such as alcohol and WiFi.

“We have fantastic occupancy,” Donald said. “People are having a great time. Carnival is doing very, very well.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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