What happened
The travel industry had a rough start to the week, with stocks falling across the market. The conflict between Ukraine and Russia continued, and that’s at least making investors think twice about owning stocks like cruise lines, which rely on customers and locations all over the world, including places people may not want to visit right now.
Carnival ( CCL -3.65% ) was hardest hit, falling as much as 6.1% in early trading and closing the day down 3.7%. But its competitors where hit, too: Royal Caribbean Cruises ( RCL -3.63% ) was down 5.6% at one point, and Norwegian Cruise Line ( NCLH -0.81% ) was down 5.5% at one point, although they closed the day down 3.6% and 0.8%, respectively.
Image source: Getty Images.
So what
A large conflict will clearly have a negative impact on travel and cruises, so it’s not surprising to see some selling of these stocks today. Investors are rotating into “safer” assets, and cruise line stocks don’t fit that description.
Operationally, there are headwinds, as well. The price of oil jumped 4.6% on Monday, currently trading at $95.88 per barrel. Fuel is a major cost for cruise lines and is pressing margins, but it also takes extra spending money out of people’s pockets. This is a double whammy for cruise stocks and should be watched closely.
While this move is relatively large for cruise line stocks, it’s largely due to macro events that are out of any one company’s control. That’s part of the cruise business, but it’s a negative, nonetheless.
Now what
Investors in cruise lines continue to be in a tough spot. They’re waiting for the business to return to more normal operations as the pandemic comes to a slow end, but there always seems to be a wrench thrown into plans. First, it was the omicron variant, and now, it’s Russia’s invasion of Ukraine.
The first impact has been that companies are finding alternatives to port stops in Russia, which started happening over the weekend. That may limit revenue slightly, but it’s manageable over the next few months.
Right now, I’m more concerned about oil prices. As I mentioned above, high oil prices could hurt both demand and margins, and I don’t see how oil will come down significantly in the next few years.
Given all of the uncertainty, this isn’t a day I’m going to be buying cruise line stocks. These companies need to prove they’re back to profitability and able to generate consistent earnings in a post-COVID world before I’m interested in the industry. And we may be a long way from that level of operation.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re Motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
