With everyone on edge about the economy, what better time is there to sail away from it all on a ship supplied with bottomless pina coladas and an all-you-can-eat crab leg buffet?
That seems to be the general sentiment these days buoying the cruise industry, which has pulled off a shockingly smooth journey through the market’s turbulent waters.
Shares of Norwegian Cruise Line Holdings rose 4.48% today after JPMorgan analysts upgraded the stock from "neutral" to "overweight.” This decision followed positive reports from the luxury liner’s CFO stating no detectable change in booking curves, cancellation rates, or dips in spending at the spas, casinos, and bazillion other diversions on board.
Meanwhile, Carnival Corporation is on deck to report its quarterly earnings this Friday. Analysts expect revenue to rise by 6.3% to $5.75 billion and earnings to improve to $0.02 per share (up from a loss of $0.14 in the same quarter last year). Some are predicting an all-out “cruise demand boom” in 2025.
This rosy outlook seems especially odd given fellow travel stocks like airlines are forecasting rough skies ahead. Economic uncertainty has dampened demand for travel and pushed shares of Delta, American, and United downward. It’s gotten so bad, in fact, that even Southwest Airlines has finally started charging for checked bags.
Don’t forget that if the economy does decelerate, discretionary spending will tumble as well, and one of the first things to go for many will be that amazing-yet-probably-unnecessary trip to Tahiti.
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So why are people still booking cruises like there's no tomorrow?
Cruises can weather a choppy economy
Despite the wild ride that Wall Street has been on of late, cruise stocks are doing just fine largely because their main clientele aren’t your run-of-the-mill travelers. Cruise fans tend to be older, wealthier, and more immune to the ups and downs that have been rattling markets.
“Cruise stocks are currently on the upswing because cruise operators have a higher-income customer base that is more resilient to economic uncertainties,” noted Jake Falcon at Falcon Wealth Advisors. “For example, Norwegian Cruise Line Holdings reported that their average customer has a household income of over $200,000 a year. This demographic is less affected by macroeconomic noise and continues to spend on leisure activities like cruises.”
In addition to serving as the preferred method of travel for the so-rich-and-old-we-don’t-care crowd, cruises also appeal to the polar opposite end of the financial spectrum—budget-minded bargain-hunting travelers who are freaking out about their 401ks right now and desperate for a holiday as long as they get their money’s worth.
“Cruises are often perceived as a cost-effective vacation option compared to land-based alternatives, which makes them attractive even during economic downturns,” Falcon added.
In other words, cruises are the perfect escape for everyone, whether you’re worried about the economy or not. This could mean smooth sailing for their stocks, making them a decent bet whatever comes next.—JD