Cruise line stocks sail ahead in travel surprise

By Peter Garnry, Head of Equity Strategy at Saxo Bank

Last week was negative for global equities with the MSCI World Index down 4.2% as financial conditions continue to tighten. But in the middle of the sea of red, our travel basket was the best performing basket down only 2%. This is quite odd given the galloping prices on energy and food which are pulling income out of households and thus the expectation is that consumers will dial down on their discretionary spending which includes traveling.

If you take a look at the travel basket we see that some of the strong performers last week were the cruise liners such as Royal Caribbean and Carnival up 5% and 1.5% respectively. The moves were not driven by any news so one potential driver could be lower prices on oil, gasoline, and diesel in the US as the country continues to release oil from its strategic reserves at a steady pace. As we highlighted in on Earnings Watch update on Friday, Carnival reports FY22 Q3 earnings (ending 31 August) on Friday this week with analysts expecting 800% revenue growth y/y and a return to profitability with $734mn in EBITDA expected. The cruise line industry is deep under water compared to the period before the pandemic.

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