Post-COVID Recovery of the Cruise Industry
Creators: name: McCormick, Eamon
Publisher: name: Brandeis University
Year: 2021
Subjects: Cruise industry; COVID-19 Pandemic; financial modeling

description: The COVID-19 pandemic brought many facets of life and industry to a screeching halt in 2020 as our modern, 21st century society struggled to come to terms with a new reality. Even for those that prefer to not glue their eyes to the stock market or pour over financial data, the impacts on several well-known companies were clear. Take AMC Cinemas, for instance. Or American Airlines. Or your favorite locally owned Italian restaurant.
description: The cruise companies caught my attention in March of 2020, and while many were quick to declare that the writing was on the wall for the industry, I believed otherwise. This thesis contends that the resilience of the cruise industry is what will pave its road to recovery, as the oligopoly enjoyed by the “big three” companies has been propped up in the recent decades by the following; 1. High barriers of entry for the industry, such as the capital outlay necessary for ship construction and the difficulty of reserving space at shipyards. 2. Widespread evasion of regulatory measures pertinent to emissions and labor laws. 3. The employment of “flag flying” practices and tax loopholes that ensure that companies in the industry virtually avoid taxation. 4. The ability to dispose of assets and dated ships through either the secondary market or the scrapping industry. 5. Export credit financing that provides cheap debt to the major companies for the continued construction of bigger and better ships. 6. Strong historical margins, such as the 40% operating margin and 15% net profit margin enjoyed by Carnival Corporation in the years leading up to 2020, and 7. The ability of the companies to issue vast amounts of equity and debt by posting their hard assets as collateral. Ultimately the industry has a host of innate advantages that will play an integral role in its recovery from the COVID pandemic, which this paper will detail. The purpose of this thesis is twofold; Firstly, to discuss the nuances of the cruise industry that best position it for recovery as the world aims to put the pandemic in the rear view, and secondly to assemble financial models that illuminate stock price recovery for the major public cruise companies.
description: Carnival Corporation (CCL), Royal Caribbean Cruises (RCL), and Norwegian Cruise Lines (NCLH) dominate the global cruising market and have monopolized dozens of brands over decades of consolidation. It is more than likely that any cruise company that may sound established and reputable is actually owned by one of the three major players. That said, all of their billions of dollars and hundreds of building-sized ships couldn’t protect the big three from the fallout associated with the pandemic, and COVID-19 essentially rendered cruise ships to petri dishes. By the second half of 2020, revenues tanked by 99%, operating margins flipped into the red, and net losses ran into the billions of dollars for CCL, RCL, and NCLH. Ships sat idle wherever possible, as countries increasingly closed their ports and banned sailing. The Centers for Disease Control and Prevention (CDC) declared a no sail order that has carried well into 2021 and is expected to continue in some form through November. The stocks tanked over 80% in early April 2020 as some, caught up in the sheer panic of the first wave, pondered if bankruptcy was on the horizon for cruise lines. Billions of dollars of cash infusions from debt and equity issuances were needed to stymie cash burn rates that were hundreds of millions of dollars a month, and the overall situation was, as one could imagine, calamitous for the cruise industry.
description: Building off a host of qualitative and quantitative assumptions, the models in this thesis project strong upsides ranging from 9% to 156% on the current prices in April 2021. At the end of the day, capitalism thrives off of catastrophe, and this thesis intends to highlight the projected recovery for just one of the heavily impacted industries of the COVID era, be it for use by the curious intellectual or the profit-hungry investor.