Cruise stocks were in positive territory Thursday morning amid a broad market rally, even though it’s unclear whether these companies will be eligible for federal assistance amid the coronavirus crisis.
Unlike the airlines, another industry hit hard by the pandemic, the cruise industry wasn’t mentioned in the 800-plus page stimulus bill approved by the U.S. Senate late Wednesday. It outlines $2 trillion of assistance to individuals, small businesses, and others.
That the cruise operators—notably Carnival (ticker: CCL),
Royal Caribbean Cruises
(RCL), and Norwegian Cruise Lines Holdings (NCLH)—are incorporated abroad has led to opposition from some lawmakers in terms of federal assistance. For one thing, these companies don’t pay a lot of U.S. taxes.
In a research note Thursday, Morgan Stanley analyst Jamie Rollo noted that the bill “specifically defines this as US businesses and the cruise lines are incorporated abroad” in places such as Panama, Liberia and Bermuda. The bill reads in part that recipients of aid, presumably loans or loan guarantees, must be “organized in the United States” under U.S. laws, have significant operations there, and have a majority of its employees based there as well.
Still, he said, the bill does include provisions “for other ‘distressed sectors’ of the economy, which may apply to cruise [lines].”
Both President Trump and Treasury Secretary Steven Mnuchin have made supportive comments in recent weeks about helping the cruise companies.
The cruise stocks have been rallying in recent days, a big turnaround from their recent swoon. Carnival was at around $17, up some 9% on the session. Royal was $42 and change, up about 1%, and Norwegian flat at around $17.
If federal assistance isn’t forthcoming, the question is how long the cruise companies can survive, especially if the pandemic is prolonged.
The companies have been trying to shore up their liquidity. Royal Caribbean, for example, announced earlier this week that it added a $2.2 billion credit facility.
All three operators, however, have suspended operations for the time being, squeezing cash flow, partly owing to high fixed costs. The companies do have some flexibility, as they can defer parts of their capital expenditures, among other steps.
The Cruise Lines International Association, a trade group, couldn’t be reached for comment Thursday morning.
In a recent note, Harry Curtis of Instinet said that the three major U.S. cruise operators—have roughly a year of liquidity. However, based on his analysis, Norwegian is in the best shape, followed by Royal and then Carnival.
Write to Lawrence C. Strauss at email@example.com