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Deutsche Bank downgraded Carnival Corp. from a “Buy” to a “Sell”. That is like shifting a Porsche from “fourth” to “reverse” as you cruise the Autobahn.

Cruising is considered a “leisure” business as far as Wall Street is concerned. And as far as that goes, it is impossible not to be aware of the credit and cash crunch facing Wall Street right now.

What is interesting is that the current Wall Street Crisis is almost completely based on falling values of real estate, because so many Wall Street firms invested in MBS (Mortgage Backed Securities) as the only way to capitalize on the real estate boom without actually buying land.

Deutsche Bank downgraded the stock of Carnival Corp. (parent company of Carnival Cruise Lines, Princess, Holland America, Cunard, Seabourn, Costa and more…) from a “Buy” to a “Sell”.  This just isn’t done!

Now, given the current performance records, the last person whose financial advice I would take is a Wall Street analyst’s. And just because they have a German name they are a full Wall Street player. The reason Deutsche Bank gives for this downgrade is “the price of fuel” is going up – and (they claim) fuel surcharges are not are not off-setting this expense.

Really? It seems to me the price of fuel is now where it was six months ago, and that it was some 30% higher two months ago. So, why are they NOW saying the price of fuel is a problem when it was not a problem two months ago?

In addition – another reason they cite for the downgrade is the fact that Carnival has several new ships on order and they fear the economy in Europe is slowing down.  Granted, much of the growth in cruising popularity is happening in Europe right now, and admittedly the European economy is slowing down, but since Europe is where new ships are built, as the European economy slows down and the Euro loses exchange value against the dollar, ship-building becomes cheaper!

So – the cost of fuel is dropping and the cost of ship-building is dropping – and Wall Street firms are lowering their estimates on cruise line stocks?

What they are really doing is saying whatever they have to say in order to justify raising cash, because that is what all Wall Street firms are doing right now. The stocks of everything, including cruise lines, have been selling off and going down lately. But why should they lower the estimate on a cruise line when a cruise line is the one vacation asset that is invulnerable to real estate prices?

Carnival has almost nothing invested in real estate – everything they have invested is in ships. Ships are mobile and can go wherever the business is best. The “value” of a ship does not go down as real estate prices fall.

The rest of this post is based on the (true) premise that Carnival and Royal Caribbean stocks trade almost completely in tandem. Rarely does one ever go up when the other is going down.

Let me tell you, last week I saw Royal Caribbean’s stock trading at a price as low as it has rarely seen in years, and so I put in an order to buy 200 shares. My buy order went unfilled. This is EXTREMELY RARE. No one wanted to sell me their Royal Caribbean Shares for at least an hour. This is a New York Stock Exchange company.

RCL basically trades in tandem with Carnival because their business models are so similar, Carnival had just been downgraded and yet no one would fill my order to buy a mere 200 shares of Royal Caribbean stock? If they had just downgraded Carnival from a buy to sell, why wouldn’t anyone sell me 200 shares of Royal Caribbean stock?

Is Wall Street crazy, or shady, or what? Whatever the real reason I truly doubt the stated reasons to change Carnival’s stock rating from a “buy” to a “sell” overnight. I think they are driving prices down so they can pull up the truck and suck in as many shares as possible. If you ever wanted to buy a cruise line stock, now is the time.

Is it crazy to be in a leisure stock right now? Especially one that gets a greater proportion of its income from overseas every year? I don’t know, but my gut tells me Wall Street either has NO idea what it is talking about anymore, or they are desperately using any tactic they can right now to make money.

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Comment from Todd De Haven
Time September 30, 2008 at 3:20 am

Although I am certainly not educated on finances, common sense dictates that you may very well Paul, have hit the nail squarely on the head with your analysis. Obviously, Wall Street got everything all wrong, so why shouldn’t you be right?

I predict recovering public trust will be a long and difficult haul for Wall Street once things finally calm down as I believe they will (if only because I don’t want to consider the alternative).

In any event and no matter what happens we are in for a Recession at least and possibly a major one at that. I base my prediction on my personal and therefore very suspect observations during the past twenty years as the markets as well as real estate have exploded beyond all proportion to prior history. I am honestly surprised that the current situation didn’t occur long ago. Of course I have the advantage of being one who personally owns no stock and whose retirement originates with probably, short of the Federal Government’s, the best funded retirement system in the country backed by the State of New York.

I strongly believe, there will be, if only in the short term, a significant drop in cruise bookings, especially in Europe, as this situation works itself through.

Were I to be of the gentried set, I’d most certainly avail myself of market opportunities…..if only because if the situation doesn’t bother Donald Trump (who is of course heavily into both commercial real estate and the leisure industry, especially gaming) then why should most of us be overly concerned about the long term future? With “The Donald’s” track record, I’d prefer to stick with his prognostications.

Comment from boat design
Time December 8, 2008 at 5:44 pm

I agree, even people who haven’t really been affected financially are tightening spending in reaction to the continued media coverage. Of course the things they cut down on first are leisure expenses.

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