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Daily Intelligence Briefing

Monday, December 13, 2021

Identifying Change-Driven Investment Themes – Five sections, explained here.

The Daily Intelligence Briefing is published by McAlinden Research Partners. The report is provided to Hedge Connection blog readers once per week for free. Below is just one of the five sections that delivers Change-Driven Investment Themes everyday.


I. Today’s Thematic Investment Idea

A deep dive into a market driver with alpha generating potential.

Cruise Line Customers Shrugging Off Omicron Variant as Travel Demand Continues to Rebound

Summary: Cruise stocks slumped throughout November, primarily due to concerns around the new COVID-19 omicron variant. Investors have been fearful that near-term uncertainty could hamper short-term travel plans, leading to reduced ticket prices and lower profitability.

However, those fears may have been overcooked. Cruise operators continue to deploy new fleets and look forward to operating at full capacity in the spring of 2022, where booking through year-end is higher than 2019 levels. Demand for travel, specifically cruising, is still on pace to make a full recovery next year as pricing is expected to remain strong.

Related ETF and Stocks: Defiance Hotel, Airline, and Cruise ETF (CRUZ), Norwegian Cruise Line Holdings Ltd. (NCLH), Royal Caribbean Cruises Ltd. (RCL), Carnival Corporation & plc (CCL)

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Cruise Stocks Bounce Back After Omicron Sell-Off

After sinking to 2021 lows, cruise stocks appear to be bouncing back. A November sell-off was exacerbated by concerns around the highly-publicized omicron variant, which stoked fears across the industry that short-term demand for cruising could be dampened.

However, early signs indicate the new variant may not have as big an impact on cruise demand as previously thought. According to Forbes, investors are growing less fearful about the severity of the variant and the subsequent impact it will have on travel plans.

Cruise bookings rose just weeks after the initial news broke of the omicron variant as wave season rapidly approaches. Wave Season is the approximate three-month period from January 1 to March 31 when cruise lines typically book the largest number of cabins.

Per Seatrade Cruise News, last week’s purchases were up 35% compared to the same week two years prior, highlighting a steady return toward pre-pandemic norms. 2022 Alaska cruises have seen the strongest interest with sales doubling over the same week in 2019, while Europe cruise purchases are up 26% over that same time.

The big three of Norwegian, Carnival  and Royal Caribbean all reported jumps in quarterly revenue as sailing slowly resumed, yet pre-pandemic profitability has yet to return.

Norwegian Cruise Line has seen steady growth in bookings since it returned to the seas over the summer and has experienced two major waves of sales. Travel Market Report writes that the company’s Norwegian Prima line broke all previous NCL booking records a few months back and that Black Friday sales were nearly on par with 2019 levels.

Keene Luxury Travel Executive VP Susan Walsh told Travel Market Report that she expects a strong wave season, noting that most cruisers are continuing with their travel plans after news of the omicron variant broke.

Demand for cruises, and travel in general, is still set to be unleased in 2022 as operations ramp up and cruises remain on a path toward profitability.

2022 Bookings, Pricing Remains Strong as Capacity Ramps Up

Carnival and Norwegian are 
both predicting profitability in 2022, boosted by bookings inching close toward pre pandemic figures, writes Forbes. Morningstar analyst Jaime Katz notes that consumer behavior regarding travel should continue to return to normal over the next year, which will restore positive profits to major cruise operators.

Further, fleet redeployments are “well under way” and should accelerate as consumers return to the seas in 2022. Cruise Industry News reports that global cruise capacity is expected to jump 8.4% in December, reaching nearly 60% of the global cruise fleet.

68 of the roughly 90 active cruise lines are now sailing with guests again, and the number of passengers per voyage is growing as well. Average capacity per ship has gone from 1,109 guests in June 2021 to 1,782 in December, an indicator that consumers are growing more comfortable with sailing and less fearful about new COVID-19 variants.

Royal Caribbean outgoing CEO Richard Fain told CNBC that the cruise line is seeing historically strong bookings for next summer, with plans to use the cash to pay down debt incurred during the pandemic shutdown.

Royal Caribbean’s sailings for full-year 2022 are booked within historical ranges and are priced even higher than 2019 rates. For the overall cruise industry, bookings are 22% above what they were during the same period in 2019.

The Wall Street Journal recently reported on the discounts cruise operators are giving to travelers with hopes of bringing back sales at a faster rate. Unfortunately, discounts are sinking near-term pricing, as short-term windows to sell near-term tickets have created lower rates. In some cases, once companies begin discounting, it can take years for tickets to return to pre-discounted levels.

However, that does not appear to be the case this time around as the pandemic created an unprecedented level of pent-up demand for travel that may not fall in line with historical pricing trends. Tickets for the second half of 2022 are already holding strong, up 5-7% compared to 2019 rates with luxury lines showing the greatest strength. 

The Wall Street Journal notes that while there might be some near-term discounting, demand should exceed supply longer-term as there is a limited number of yards building cruise ships each year. That creates an environment for pricing stability, meaning lower near-term rates may not have much of an effect on ticket prices after all.


Thus far, it appears travelers have mostly shrugged off the threat the omicron variant poses. Still, cruise lines’ stock prices and COVID-19 cases have been closely linked for some time, so omicron’s development is certainly something to monitor.

Nevertheless, operators are forecast to return to profitability next year as pricing holds strong for the second half of 2022 and fleets are being deployed at an accelerating rate. Pent-up demand for travel remains robust and the cruise industry expects to move closer to pre-pandemic capacity in the months ahead.

MRP added LONG Travel & Leisure to our list of themes on September 29, 2021, as a significant rebound in travel demand approaches in 2022. To track this theme, MRP utilizes the Defiance Hotel, Airline and Cruise ETF (CRUZ), a new fund launched in June to capitalize on the reopening trade.

Since the initiation of this theme, CRUZ has fallen -10% thus far, underperforming the S&P 500’s return of +10% over that same period.


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