Tuesday, May 25, 2010

Cruise Lines - No Midnight Taco Bar for You

Good morning.  Only last week I wrote an article with a few high level reasons why I believe the movie theaters could be starting an industry-wide secular move, article here.

Today I remembered Royal Caribbean (RCL) which I had been watching back in April (and missed the entire move, so far).  Cruises as recreational entertainment probably won't go out of business altogether, but they are in for a stretch of pain if my thesis is correct that the middle class consumer is entering a second iteration of fiscal hardship brought about by declining credit and inflationary trends in the costs of basic goods.

Therefore, take a look at RCL whose near term debt maturity and debt ratios are unfavorable.

Reasons why cruising will suffer:
  • Peripheral costs (flight to port city, car rental/parking, day trips, booze);
  • What do I get with the room?  Nothing, and don't call that shoebox a "room";
  • Cruising demographic (retirees, spring breakers, trailer park Shamu and her patsy husband);
  • What is there to do when I get there?  Midnight taco bar, look at fat chicks at the undersized pool;
The crux of the point being that the middle class now enters a sustained period of restraint, there's not enough value proposition to justify the cost of a cruise.  Retirees have been dinged for big losses in each of the last 3 decades.  For all the money spent to cram yourself onto a floating borefest, it's easy to ignore the "fun" of going altogether.  All of that being the case, Royal Caribbean should get pinched between consumer debt, price competition, and balance sheet debt.

Red sky morning, sailors warning.