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Airline Stocks or Cruise Stocks: Which is the Better Investment?

Monday, April 13, 2020 | Sean Sechler
Airline Stocks or Cruise Stocks: Which is the Better Investment?

It’s safe to say that the travel industry is experiencing an extraordinary drop in consumer demand. The coronavirus pandemic has led to a complete global economic shutdown. People are simply not traveling and the shares of companies in the travel industry have experienced the worst of the market downturn over the last month. However, there are still plenty of investors out there that are interested in these businesses thanks to their extremely discounted share prices.

Two types of travel-related companies that many are looking at as potential buying opportunities are airline stocks and cruise line stocks. These companies are essentially unable to earn revenue at this point in time due to the pandemic lockdown, but that doesn’t necessarily mean they won’t be able to come back strong when things start improving. The right questions to ask are which one will be able to ramp their business back up sooner and which has better long-term prospects? Let’s evaluate whether airline stocks or cruise stocks are a better investment opportunity below.

Airline Stocks: Grounded

The major airline companies are seriously hurting right now since the demand for flights has dropped to unprecedented levels over the fear of the coronavirus. Companies like Delta Airlines (NYSE:DAL) have stated that they are losing $60 million a day due to a 95% drop in year-over-year monthly demand for their flights. Even though the industry is in turmoil, it’s hard to imagine a scenario where all of the major airlines like Delta, Southwest, and United go bankrupt. We’ve already seen a $2 trillion-dollar stimulus package signed into law that includes the government taking a $50 billion stake in airlines. That should help these companies survive the negative circumstances in the short-term, but trying to forecast their financial performance over the long-term is another task entirely.

It’s important to understand that airline companies will need to adapt if they plan to make it through this health crisis. You will see the industry leaders with strong management teams separate themselves from the pack over the next few months. Earnings per share growth will be nonexistent for airlines in 2020 and demand for air travel will potentially be permanently altered going forward. It will be a while before these companies can charge the same prices for flights that they were prior to the coronavirus outbreak. Business air travel will likely return to normal sooner than leisure air travel, but there are still big question marks about what the airline industry will look like going forward.

Cruise Stocks: Bon Voyage

Another industry that has been nothing short of devastated by the impact of the coronavirus is the cruise industry. Cruise stocks like Carnival (NYSE:CCL), Norwegian Cruise Line (NYSE:NCLH), and Royal Caribbean (NYSE:RCL) might seem tempting as they have all sunk over 50% from their 52 week highs. Even though these stocks have bounced off of their lows, remember that they are all currently in survival mode. Add to that the fact that the major cruise lines are not registered as U.S. businesses and are unable to receive financial aid from the $2 trillion stimulus package and you have real cause for concern.

Also, after several public relations nightmares including horrifying stories of passengers stuck at sea with coronavirus spreading on the ships, it might be a while before people feel comfortable about traveling on a cruise ship again. Not only are all cruise ships barred from setting sail at this point in time, but the federal government doesn’t seem to be jumping at the prospect of intervening with financial aid. Some investors will be interested in cruise stocks due to their high dividend yields, but Carnival has already cut their dividend and started new debt issuances. It is very likely that more dividend cuts and significant revenue losses are coming as these companies are forced to take drastic measures in order to survive.

The Bottom Line: Cruise Stocks or Airline Stocks?

Both airline stocks and cruise stocks should be considered high-risk investments in the short-term at this time. We simply don’t know when their businesses will be able to return to normal due to the global pandemic. With that said, you have to like the rebound prospects of the airline industry more than the cruise industry. Air travel is an essential in today’s world. The demand for air travel will absolutely return at some point and the federal government will support these companies in the meantime.

On the other hand, the cruise industry has recently suffered a public relations nightmare that might linger on for years and cruise companies appear to be in a more severe financial situation than airlines. The bottom line is that cruise travel is more of a luxury than a necessity, while air travel is a crucial component of life as we know it. As business returns to normal and coronavirus cases decline, the investment prospects of the airline industry are much more intriguing than cruise stocks. Just keep in mind that both industries will have a long road to recovery from their current situations.

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Not surprisingly healthcare stocks were battered last year. Overall, the sector was down 11%, far below the S&P 500 Index that climbed over 15%.

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View the "7 Healthcare Stocks Delivering Innovation in 2021".


Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Delta Air Lines (DAL)1.4$46.75+1.0%N/A-2.40Hold$47.84
Norwegian Cruise Line (NCLH)1.3$28.88+1.0%N/A-2.10Hold$25.42
Carnival Co. & (CCL)1.3$27.52+1.2%N/A-2.67Hold$25.25
Norwegian Cruise Line (NCLH)1.3$28.88+1.0%N/A-2.10Hold$25.42
Royal Caribbean Group (RCL)1.3$84.54+0.3%N/A-4.28Hold$77.64
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