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Smooth sailing as the cruise industry waves off Omicron fears

You would be forgiven for thinking the US cruise liner industry is on its knees. As recently as January 18, the country recorded nearly 1.2 million new daily COVID-19 cases. While everyone could do with a sunny vacation to break up the monotony of winter, boarding a ship to be surrounded for weeks by potentially infected passengers is not the most obvious choice.

Even the Centers for Disease Control and Prevention said, on December 30, that Americans should avoid cruise liners for the foreseeable future and noted this month that COVID-19 cases had been reported on board every single cruise liner sailing with passengers in US waters.

And yet, even with these challenges, major cruise liners seem to be holding firm and looking to the horizon.

What lessons can be learned by companies coping with similar COVID-19 fallout?

1/ Despite some dark clouds, investors seem to be looking to a brighter future

Despite the S&P 500 tumbling in the second half of this month, cruise liners have seen their share prices recover substantially since Omicron was  identified in South Africa in the last week of November 2021.

Between December 1, 2021, and January 14, 2022, the share price of Carnival Cruises was up more than 40%. Similarly, Royal Caribbean Group was up nearly 31% over the same period, while Norwegian Cruise Line gained more than 22%.

It is not just equity markets that suggest investors believe the worst of the pandemic is behind the cruise liner industry.

Earlier this month, Royal Caribbean boosted a new junk bond with a coupon of 5.375% from US$700 million to US$1 billion, taking advantage of investors' confidence in the travel sector's recovery. The bond's proceeds will be used to refinance debt maturing in 2022, the liner carrying around US$21 billion on its balance sheet.

2/ Investors may be right to take a “glass half full” approach

Beyond the hyperbolic headlines, investors have seen plenty to be optimistic about. All the evidence suggests Omicron is milder than previous SARS-CoV-2 variants, with Delta having been milder than its predecessors. It's certainty the preferable trajectory.

Not only that, but vaccine uptake has gained considerable mass—63% of the US population is now fully vaccinated. And even though current vaccines have proven to be less effective against Omicron, deaths due to COVID-19 are nearly half what they were at the previous peak a year ago.

For many, that's enough to get back out on the open seas.