Markets are realizing how uninvestable the cruise line, and by that extension, airlines, casinos, and hotels are as the COVID-19 spread worsens worldwide except for China. Yet believing that tourism companies will not survive the shutdown is premature. As the world figures out a way to slow the spread and treat the sick, the lockdown will ease.
Airlines and hotel companies need to raise their cash levels on hand through debt issuance. Carnival will see billions in new debt to strengthen its cash levels to weather the current loss of business. Two issues remain in justifying an investment in the cruise line sector.
First, major countries do not have an end date for the lockdown. The uncertainty will raise concerns over Carnival’s ability to stay solvent.
Second, when people eventually return to work, going on a cruise is the last thing anyone would want to do. The fear of a breakout in a ship may last for months, if not years.
Consumers are usually fickle over the long-term. Fears over the breakout will become a distant memory in the future. So, the real risk for the cruise ship industry is surviving the short-term cash crunch. Investors who buy the stock at new lows may get rewarded over the next few years.