Johanna Jainchill
Johanna Jainchill

Wall Street analysts are tasked with following companies and reporting on developments that investors can use to decide whether or not to buy, hold or sell a company's stock.

As such, the analysts, in theory, do not benefit by over- or under-hyping how the industry is doing and can offer a useful measure of what a sector looks like from the vantage point of the investor community. And when they want to get an insider's pulse on how the cruise industry is doing, analysts often speak to travel agencies.

Patrick Scholes, an analyst with Truist Securities, said that based on conversations with executives at large travel agencies, along with data on future bookings and pricing, what stands out most is the "whipsaw between the good news and the bad news."

"For every good point it seems there is an equally bad point, and vice-versa," he said in a note to investors, adding that the sentiment from industry contacts seems to be, "2021 is a return to sailing, 2022 is a return to normalcy, and 2023 is the year where revenues approach 2019's levels."

Some of the "best good news," he said, is that "it is undeniable there is a tremendous amount of pent-up demand for cruising combined with an eventual light at the end of the tunnel for a vaccine."

Leading the "bad news" front, he said that travel agency executives remain highly concerned that cruising, "will not return to normalcy until a vaccine is made available and widely distributed." There's also concern that the recent CDC's Conditional Sailing Order is "really a de facto no-sail order" because "the CDC's hurdles are so high that it will make it extremely difficult for the cruise lines to sail with paid customers."

Scholes therefore thinks that cruise companies will need to raise additional capital to stay afloat, "further depressing earnings."

Scholes also cited the SeaDream outbreak and the ensuing political pressure in Congress to reinstate the original No Sail Order. "Of course, it remains to be seen if anything will come from this political pressure, but if nothing else, it just adds one more risk that paid sailings will not happen until there is a widely distributed vaccine," he wrote.

Back to the good news. He found that cruise lines are staying disciplined on price "and we are not seeing significant discounting, or at least not yet.  We believe the cruise lines, on average, have not dropped prices because, frankly, they do not need to given the pent-up customer demand, combined with the limited occupancy onboard ships when they do start sailing," he wrote.

He also found that 2021 cruise pricing is down far less (5% for Alaska, flat for the Caribbean, and up 2.5% for Europe) that U.S. hotel room rates, down approximately 30%. "Then again," he said. "Most hotels are actually open, so perhaps not a fair comparison."

Also good: The sales pace (the combination of bookings and pricing) has gotten "less bad" over the past ten weeks, he said, with Alaska faring the best, Caribbean the worst, and Europe in the middle.

But the bad news, he said, is that travel agencies did not seen any sudden uptick in cruise bookings or change in customer behavior since the Pfizer vaccine news ten days ago. And the first half of November saw a soft pace of sales, down approximately 40% year over year, which Scholes attributes to the election and the spike in Covid cases.

Scholes found that luxury bookings are outperforming mass-market ones, with his data showing that bookings and pricing over the past ten weeks are down approximately 20% year over year for the overall cruise industry but are actually up about 5% for luxury and river cruises. He says while that may seem surprising because the luxury segment "skews to much older customers travel agents are hearing that this customer 'wants to live their life, so book me!'" 

He also attributes the strength to the perceptions that smaller ships in the luxury and river segment are safer and wealthy customers are "feeling good about their stock portfolios."

Whipsaw, indeed.

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