Share prices of major cruise lines are in freefall on Thursday amid fears that the coronavirus outbreak will plague their businesses in the months to come.
The latest sell-off of Carnival, Royal Caribbean Cruises (RCL) and Norwegian Cruise Line on Nasdaq has come as more passengers are affected by the Covid-19 epidemic in Europe and the US.
As of mid-day, Carnival was down 11.8% at $28.6 per share, RCL down 14.6% at $67.1, and Norwegian Cruise down 15.2% at $28.01.
Suffering collateral damage was Milan-listed Fincantieri, the world’s largest cruiseship builder by orderbook size, whose share price fell 6.7% to €0.67 ($0.75) on Thursday – the largest single-day loss in 16 months.
Moreover, financial market players are seeing higher default risks among some cruise liners.
The five-year senior credit default swaps (CDS) of RCL jumped by 59 basis points to 305 basis points as of Thursday morning, the widest since June 2013.
According to Bloomberg, this implied a default probability of 21.9% over the next five years for the company.
Carnival, which enjoys a better credit rating than RCL, saw its five-year senior CDS increase by 40 basis points to 203 basis points.
Bloomberg estimated its implied default probability at 15.2%.
Since mid-January, when the epidemic began to escalate in China, share prices of Carnival, RCL and Norwegian Cruise have nearly halved.
Spread of coronavirus
The three cruise giants expected their losses associated with Covid-19 would amount to $555m this year on 20 February. At that time, the outbreak mainly affected East Asia.
However, their business environments have significantly worsened since then, with the number of people infected with the new, deadly virus spiking in the US and European countries.
The 107,500-gt Grand Princess (built 1998), operated by a Carnival subsidiary, was held off California after two passengers on a previous cruise tested positive for the virus.
One of them died on Wednesday, prompting California Governor Gavin Newsom to declare a state of emergency.
The lucrative Mediterranean market suffers a significant blow as Italy, a major tourist destination, becomes the world’s fourth affected country with more than 3,000 confirmed patients.
In Greece, another important market for cruise liners, the operation of 2,150-berth MSC Opera (built 2004) was disrupted this week after a previous passenger tested positive.
Citing an unnamed cruise operator, Wall Street Journal reported forward bookings for the summer of 2021 and 2022 are down by as much as 40% in the Mediterranean.
