Not All Is Smooth Sailing for These Cruise Lines

Not All Is Smooth Sailing for These Cruise Lines

Royal Caribbean Cruises and Norwegian Cruise Line have pleased investors year to date, seeing stock appreciations of 28.27% and 22.93%, respectively. Carnival , on the other hand, has disappointed investors, seeing its stock depreciate 0.91% year to date -- at a time when the broader market is reaching all-time highs.

With Carnival's abysmal safety record, travelers and investors have lost confidence in its operation. Still, investors want to know about the future. Carnival recently made a splash with its Carnival Sunshine. And Norwegian Cruise Line continues to impress travelers and the industry. But what really stands out is a recent move made by Royal Caribbean. Many travelers and investors alike might see it as a negative, but it's actually a positive. So let's take a deeper look into the companies' recent moves.

Carnival needs more sunshine
After several unfortunate events, Carnival must now take on the role of trying to win back the trust of travelers and investors. And it's going to take some time.

Here's a summary of Carnival's recent accidents and incidents:

  • Nov. 8, 2010: Fire on Carnival Splendor

  • Jan. 13, 2012: Costa Concordia runs aground and partially sinks

  • Feb. 10, 2013: Fire on Carnival Triumph

  • March 14, 2013: Emergency generator failure on Carnival Dream

  • March 15, 2013: Propulsion pad mechanical problem on Carnival Legend

All that said, Carnival has a strong brand name, and it has the potential to turn its mother ship around. In addition to recent management changes, the new Carnival Sunshine set sail on Nov. 18, 2013, from New Orleans. It's a 3,006-passenger ship, as well as the largest ship ever to have its home port in The Big Easy. The boat experienced a 75-day makeover at a cost of $155 million. Its features include a three-level adults-only retreat, a water park, a ropes course, and, of course, several distinctive restaurants and bars.

It's evident that Carnival is attempting to increase demand by going big. The Carnival Sunshine offers three week-long itineraries, two to the Western Caribbean, and one to the Bahamas/Florida.

Impressing travelers and investors
Norwegian Cruise Line has received many accolades, which is a tribute to the overall operation. It also made a big splash with its Norwegian Breakaway launch this past April. Editors of rated it "Best New Ship." It has a passenger capacity of 4,000, and its unique features include a bakery by "Cake Boss" Buddy Valastro and, for entertainment, not one but three Broadway shows.

The company's Norwegian Epic (4,100-passenger capacity) has been rated "Best Overall Cruise Ship" by readers of Travel Weekly. And it has been rated "Best Ship for Sea Days" by

Norwegian Cruise Line doesn't plan on slowing down. Its Norwegian Getaway is under construction, which will be the largest ship ever to call Miami home. Additionally, the Escape is expected to be delivered in fall 2015, and the Bliss is expected to be delivered in spring 2017.

A setback
Royal Caribbean recently announced that its Allure of the Seas will undergo an unscheduled repair, and that its Feb. 23, 2014, sailing will be canceled. This obviously won't help the top line, as travelers have an opportunity to receive a 100% refund.

Royal Caribbean reports the problem as "unanticipated bearing wear in one of its three propulsion motors." Royal Caribbean further states that all three motors are fully operational and there's no danger. At the same time, that extra speed might be required in an emergency situation.

Royal Caribbean didn't need to make this move now, but by doing so, it indicates that Royal Caribbean is taking a long-term, disciplined, and responsible approach, which indicates quality management. This act should help put travelers' and investors' minds at ease.

Risky investments
Royal Caribbean and Norwegian Cruise Line appear to be better-run operations than Carnival. However, Royal Caribbean is trading at 131 times earnings, and Norwegian Cruise Line is trading at 99 times earnings. This leads to extremely high expectations, and if negative news comes out, it could lead to the stocks' decline. Carnival is "only" trading at 25 times earnings, but its reputation has taken a hit.

Royal Caribbean and Norwegian Cruise Line are likely to continue to see stock appreciation as long as the broader market stays healthy, but you can find much safer long-term investment opportunities without sacrificing growth potential. If you want peace of mind, consider avoiding all three companies, but keep them on your radar.

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