Carnival Corp (NYSE: CCL), Royal Caribbean Cruises Ltd (NYSE: RCL) and Norwegian Cruise Line Holdings Ltd (NYSE: NCLH) have cancelled voyages for the next month or two to reduce their liabilities as the coronavirus pandemic grows in scope.
The service suspensions — and the long-term impact on consumer trust — could prove painful, according to BofA Securities.
The Royal Caribbean, Norwegian Cruise Line Ratings
Andrew Didora downgraded Royal Caribbean from Neutral to Underperform and cut the price target from $117 to $25.
The analyst downgraded Norwegian Cruise Line from Buy to Neutral and cut the price target from $61 to $18.
BofA's Royal Caribbean, Norwegian Cruise Takeaways
Net yields will be twice as bad for the cruise lines as they were after Sept. 11, when they fell 20%, Didora said in the Tuesday downgrade note. (See his track record here.)
“With the booking curve for cruise 9-12 months on average and the outbreak coinciding with the important 1Q bookings period, we do not expect a quick snapback, and we forecast 2H20 net yields of -15%,” the analyst said.
By BofA's assessment, demand could take several years to recover. Net yields took three years to return to pre-Sept. 11 levels and about eight years to return to pre-Great Recession levels, he said.
“We believe the net yield recovery could be even longer following this outbreak given its core baby boomer demographic has been most impacted,” Didora said. “While repeat cruisers (~65% of passengers) could return to cruising once the outbreak is over, we see a long tail on regaining the trust of the new-to-cruise customer base.”
Royal Caribbean is expected to shoulder a greater burden than its peers, and the analyst said the company should suspend its dividend to ensure liquidity.
“Liquidity concerns remain the critical question, and we view NCLH as better positioned given no upcoming ship deliveries until 2022 and no dividend,” he said predicting no liquidity issues for Norwegian Cruise Lines.
Across the industry, BofA expects a negative 2020 bottom line and a 50% decline in earnings before interest, tax, depreciation and amortization.
Royal Caribbean, Norwegian Cruise Price Action
Royal Caribbean shares were down 3.06% at $29.02 at the time of publication Tuesday, while Norwegian Cruise shares were down 6.22% at $10.26.