What happened
Cruise-ship stocks climbed on May 8 after
Royal Caribbean (NYSE:RCL) provided a business update. Shares of
Carnival (NYSE:CCL),
Norwegian Cruise Line Holdings (NYSE:NCLH), and Royal Caribbean rose 5%, 3.6%, and 5%, respectively.
So what
With their ships stuck at port due to
sailing restrictions imposed by health agencies during the
COVID-19 crisis,
the major cruise-ship companies are bleeding cash. In turn, Royal
Caribbean, Norwegian, and Carnival have all taken on more debt in order
to raise the cash they need to survive until their ships can begin
sailing again.
On Friday, Royal Caribbean said it had approximately $2.3 billion in
cash reserves as of April 30, which it boosted by drawing $150 million
from its senior secured credit facility on May 4. "Since late January,
we have undertaken several proactive measures to mitigate the financial
and operational impacts of COVID-19," Royal Caribbean CFO Jason Liberty
said in a press release. "Our focus is on bolstering liquidity through
significant cost cutting, capital spend reductions, and other cash
conservation measures."
Liberty went on to say that Royal Caribbean is considering other ways
to obtain cash. "We continue to evaluate all options available to us to
further enhance liquidity," he said.
Cruise-ship companies clawed back some losses on
Friday, even as the industry continues to face rough seas ahead.
Now what
Cost cuts can only go so far. And taking on more debt to raise cash is not a panacea. Eventually, the bill will come due.
And while their ships are docked at ports, the cruise-ship giants
continue to burn through cash. Royal Caribbean alone is losing as much
as $275 million
per month.
Thus, Carnival, Royal Caribbean, and Norwegian Cruise Line holdings all remain
high-risk stocks.
