Cruise stocks turn defensive as Hurricane Beryl heads for Yucatán

Cruise stocks are under pressure Monday as a major hurricane rips through the Caribbean, with the Yucatán peninsula and its popular destinations of Cancun, Playa del Carmen, and Cozumel the next target. Hurricane Beryl has already made landfall as a dangerous Category 4 storm on the Caribbean Island of Carriacou in Grenada, with the National Hurricane Center warning of the “extremely dangerous” conditions of the third named storm of the season.

The path of the hurricane has already forced major cruise operators to change itineraries, including Royal Caribbean (RCL) which has three ships currently in the hurricane’s path. The company warned that as a result of high waves and strong winds the intended path to the Eastern Caribbean would be modified.

While hurricane preparedness and altered itineraries are nothing new to the cruise industry, the severity of the storm so early in the hurricane season has made investors nervous that this could be a challenging summer for the industry. Besides Beryl, there is another potential storm developing several hundred miles behind following the same path into the southeastern Caribbean islands, making this already the fourth named storm since the start of the season. According to NHC historical data, the fourth named storm typically forms by August 15, and the National Oceanic and Atmospheric Administration predicts the 2024 hurricane season will be well above average with 17-25 named storms.

Fortunately for passengers, cruises are rarely canceled because of a storm, although the itinerary can be changed if the storm is impacting a scheduled port, especially if it’s a tendered port. Cruises can be re-routed depending on the path of the storm with Eastern Caribbean destinations moved to Western Caribbean destinations, and Bermuda destinations being moved as far north as Canada. Since cruise ships can travel faster than most storms, there is little chance of a ship being caught in the middle of a hurricane or to be at a port long enough to coincide with landfall.

Still, the industry faces headwinds not just from storms, but from indications that prices heave peaked and are beginning to come down in June. According to a study from BofA Securities, 40% of cruise itineraries had softer pricing compared to 33% in May, while only 32% of itineraries showed higher pricing versus 43% in May. Analysts attribute some of the softness to the increased supply of cruises to the Caribbean and Alaska due to disruptions in the Red Sea.

Among the major stocks in the category, Norwegian Cruise Lines (NCLH) is suffering the heaviest losses, down 6.5%. Carnival Corporation (NYSE:CCL) is lower by 5%, followed by a 3% drop in Viking Holdings (VIK). Shares of Royal Caribbean (RCL) are down 3%.