Costa Cruises made headlines this week amid fear that one of the 6,000 passengers aboard one of its ships had been infected with coronavirus. Health officials eventually diagnosed the patient with the common flu, but stock in the passenger line’s parent company, Carnival, took a dive.
The fact that the incident, off the Italian coast, was a false alarm has done little to relieve investors’ anxiety. Carnival stock (ticker: CCL) bounced back, but J.P. Morgan analyst Brandt Mountour is preparing for choppy seas for it and other cruise operators.
Coronavirus, which originated in Wuhan, China, has already reduced international tourism. Millions of Chinese consumers are facing quarantine and travel restrictions, while government such as the U.S. have urged people not to visit China. Early cases of what the World Health Organization has now declared a global health emergency coincided with the Lunar New Year, derailing one of the planet’s busiest annual travel seasons.
Cruise operators appear particularly vulnerable to disruption. Ships are notorious for health scares given their close quarters and isolation at sea. The companies also rely heavily on advance bookings.
It is this element that places cruise companies at greater risk than, say, casinos in Macau, writes Mountour. People planning vacations are unlikely to buy tickets after reading about health problems on board.
According to research conducted by J.P. Morgan, cruise stocks have fallen an average of 16% in the immediate aftermath of similarly big events, including the 2015 Paris attacks; the 2013 Carnival Triumph incident, when a ship lost power for four days following a fire; and the near capsizing of the Concordia in 2012.
Ultimately, the analyst says, losses are likely to be somewhere between what he considers to be the most likely and worst-case scenarios. If the virus slows down in February, allowing sailings from China to resume in March, the analyst wrote, shares will likely recover around 10%. If coronavirus continues on its current trajectory later into the year, the stocks could be hit harder.
“Our downside case is the virus continues to spread, operators cancel cruises through March, China revenues are down 15% on an annualized basis, and global demand is impacted moderately,” he wrote.
That would imply to further respective losses of 6%, 8%, and 2% for Carnival, Royal Caribbean Cruises (RCL), and Norwegian Cruise Line Holdings (NCLH), according to Montour.
Carnival and Costa Cruises have already canceled all trips that were due to dock in China until early February. Norwegian is administering screenings and plans to direct any passenger with a temperature of 100.4 degrees Fahrenheit, or more, to receive medical attention.
Spectrum of the Seas, the only Royal Caribbean ship with a home port in China, was set to travel to Okinawa from Shanghai on Monday. The voyage has been scrapped and passengers will get their money back, the company said in a statement.
Write to Alistair Bates at Alistair.Bates@dowjones.com
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How Coronavirus Could Play Out for Cruise Operators - Barron's
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