Cruise lines’ stocks fall after Fed rate hike raises concerns about debt, recession

People go out to see Carnival Cruise Line’s new Mardi Gras ship as it departs on its maiden voyage, a seven-day cruise to the Caribbean from Port Canaveral, Florida on July 31, 2021.

Paul Hennessy | Anadolu Agency | beautiful pictures

Shares of Carnival, Norway and Royal Caribbean fell this week after the Federal Reserve again rate increasehas raised worries about the huge debt of travel companies and their resilience in a broader economic downturn.

The drop in travel stocks comes as the industry struggles to recover from the pandemic, with bookings rising after The US Centers for Disease Control and Prevention has removed Covid-19 guidance from ships.

“There’s a lot of one step forward, one step back,” said Truist analyst Patrick Scholes. He also noted that cruise companies are heavily indebted while their ships are moored during the pandemic.

As of September 1, Truist estimates that Carnival is holding $35 billion in debt, Royal Caribbean has $25 billion, and Norway has $14 billion in debt. Correspondingly, the value of companies on the stock market is about $11.01 billion, $11.18 billion, and $5.61 billion.

The drop comes in a broader market sell-off, as the three major indexes have beaten since Wednesday’s Fed decision.

Norwegian, Carnival and Royal Caribbean did not respond to requests for comment.

“In my opinion, the reason stocks fell sharply on Wednesday is because you fear that companies will have to pay more for their debt,” said Deutsche Bank analyst Chris Woronka. . Losing companies persisted throughout the week.

At the same time, Woronka said its revenue may not recover as strongly in a broader economic downturn if people spend less on entertainment.

On Thursday, Bloomberg reported that Royal Caribbean will use high-yield corporate bonds, or “junk bonds,” to help refinance $2 billion in debt due next year.

There are still some Investors were optimistic on debt-laden cruises. Earlier this month, Stifel analyst Steven Wieczynski reiterated the buy rating for Norwegians, noting that cruise bookings have increased, particularly for luxury lines serving high-income customers. higher input.

Scholes says Norwegian has the best location with a high percentage of luxury options. But between high interest costs and still-recovering revenue, he said there is no travel agency that hasn’t “got out of the woods”.

Shares of Carnival are down about 55% this year, while shares of Norway are down about 35% and Royal Caribbean are down about 43%.

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