In the past three years, regency Cruises, American Cruise Lines, Bermuda Star Line, and most recently, Carnival Cruise Line, have sold stock to the public to raise capital. These stocks have all dropped considerably with the recent downward trend of the market.
Considering that even veteran blue chip stock IBM is currently down 37 percent from its 1987 high as a result of the October 19 stock market freefall, it's no wonder rookie cruise line stocks have dropped as far as 90 percent from their initial public offering prices.
The malaise in the market has prompted Norwegian Caribbean Lines, attempting to go public for several months, to postpone its stock offering until conditions improve. Sea Venture Cruises has also postponed its planned offering.
Club Med may also be stretched a bit in its cruise venture as its shares stabilized at a third of their high for the year following the crash. The company also posted a loss in the third quarter, double the usual season deficit, and it must absorb high opening expenses for its new village in Florida.
American Cruise Lines, which went public last spring at $9.50 per share, is now going for 87 1/2 cents - a 90-percent drop. A stock analyst said a heavily-leveraged company like American, which carries a lot of debt and has shown losses due to low cruise revenues from its four ships and start-up costs of its new ship, the M/V Charleston, is highly susceptible to any downturn in the market.
According to the line, it has cancelled many Florida winter cruises this season due to weak bookings - the result of overcapacity in the small ship category.
Bermuda Star Line went public in February of 1986 for $6.00 per share; the stock has since dropped 70 percent to $1.75 at press time. They are in a similar situation as American in that the line recently purchased the Liberte from American Hawaii Cruises. Now renamed the Canada Star, debt incurred through start-up costs and low revenue from the first season of the new ship would also make Bermuda Star more vulnerable to the negative market conditions, said the analyst.
Carnival Hurt, Too
According to Harvey Katz, an analyst handling Carnival stock for Salomon Brothers Inc., however, the newness of Carnival's stock and a general lack of understanding on the part of investors, caused the stock to be affected more than it should have been. Carnival opened last August at $15.50, and is now valued at $9.50 - a fall of 38.7 percent.
"Regardless of whether a company is good or bad, the newer, smaller stocks will perform worse in the current market," said Katz. "They get hit hard because people tend to go with the quality, blue chip stocks when the market goes down," he said.
"People don't recognize the strength of Carnival," said Katz. "Historically and down the road, the middle America market - Carnival's niche is the untapped market predicted to grow," he said.
Katz said most Carnival stockholders have held on to their shares because the stock was initially marketed to investors with a long-term view. "The long-term view for Carnival is favorable," said Katz. "The growth rates predicted should come up, although it won't be easy and it will take some time, I think the potential is there," he said.
Lack of Understanding
The lack of understanding Katz refers to is a feeling on the part of investors that a recession is coming and with it a lack of discretionary income to spend on vacations.
"One of the last things people tend to give up is their week vacation," said Katz. "More likely, they will gravitate toward vacation values, and the cruise line product, with its all-inclusive pricing, should attract them," he said.
The cruise product, said Katz, delivers a pleasant destination, food, room, entertainment, and sometimes air fare, that together represent a nice vacation package. "Where can you go for a week and get all that for a $1,000 a head?" asked Katz. "It's tough to do unless you take a cruise," he said.
Defined Niche Important
Katz believes a defined niche in the market and a brand identity associated with that market is crucial to maintaining good business and healthier stock prices. In the case of Bermuda Star Line, the lack of defined markets may have hurt revenues.
"Bermuda Star has done some jumping around," said Katz, referring to the line's new presence in Canada and its forays into other markets, including Mexico and the Panama Canal. He added that such lack of focus obscures brand identity, making it more difficult to compete with lines already established in markets they are attempting to break into.
Regency Has Right Idea
Regency's stock has suffered the least losses in the market turnaround, and the reason, said Katz, is the company's sharp focus on its well-defined market.
"Regency has done quite well," said Katz. "They have established a market for themselves that is unique," he said, noting that Regency is the only cruise line offering the Caribbean and the Panama Canal on a seven-day cruise.
According to company literature, Regency has been profitable from the first sailing of the 722-passenger Regent Sea in November of 1985. It has since added the 950-passenger Regent Star which sails seven-day cruises from Montego Bay, Jamaica. And it just acquired the 816-passenger Royal Odyssey from Royal Cruise Lines; it will deploy her as the Regent Sun in December of 1988 on seven-day cruises from Jamaica also.
Regency's income, before interest income and taxes, for the first three quarters ended September 30, 1987 was $6.42 million, which represents an increase of $1,9 million or 44 percent over the same period in 1986, according to the company's literature.
Regency went public in May of 1985 for $2.00 a unit consisting of one share of common stock and one warrant (an option to purchase a share of common stock at a set price before a specified date). Units are no longer being sold, but a share of Regency's common stock was going for $1.34 at press time. Many stockholders used their warrants to buy additional shares of common stock for $2.00 a share, or for $1.50 during a special "window" period of three weeks. So now, their investments have dropped 33 percent and 10 percent respectively, which is not bad considering the market conditions, said Katz.
Katz said cruise lines should define their markets and products in the minds' of travel agents to win the first-time cruiser on which the future of the industry depends.
"People doing something for the first time want advice, and the vast majority of that advice will come from their travel agents," said Katz.