By Callum Keown

Travel stocks have been getting crushed recently amid signs consumers are starting to pull back on spending. But what if it's not affecting cruise operators?

J.P. Morgan upgraded Norwegian Cruise Line Holdings stock to Overweight from Neutral for that reason. "The definitive message from management was zero detectable change in demand behavior to date despite 'noise' in the macro backdrop," analyst Matthew Boss said Monday after hosting Norwegian's Chief Financial Officer Mark Kempa at the bank's gaming, lodging, restaurant, and leisure conference last week.

The shares, which are down 25% this year through Friday's close, jumped 4.6% to $20.07 ahead of the open Monday -- the S&P 500's best performer in premarket trading.

Boss, who has a $30 price target on the stock, said Norwegian has seen no change in booking curves, no cracks in onboard spending, and no changes in cancellations rates.

The bank reiterated its Overweight rating on Royal Caribbean, too -- with Boss noting that management also indicated demand remains very positive.

Investors have been selling travel stocks in recent weeks as fears of a slowdown in consumer spending have grown. Delta Air Lines' warning last week that both consumer and corporate confidence has been dented in the first quarter due to macro uncertainty accelerated the selling. The carrier, along with several others, cut first-quarter guidance.

The big three U.S. airline stocks -- Delta, United Airlines, and American Airlines -- have all fallen around 30% over the past month. Cruise stocks have also suffered -- Royal Caribbean is down 17%, Norwegian has fallen 27% and Carnival is 23% lower over the same period.

But why would cruise operators be insulated from a demand slump that's affecting airlines?

Boss said Kempa put it down to two things -- the value gap and the experience gap. It's the perception that cruise companies offer better value for money than land-based vacations. Secondly, consumers feel they are getting a better experience from a cruise so are more willing to part with the money despite signs of demand softness elsewhere.

Carnival is set to report earnings Friday, which will shed more light on how the cruise sector is shaping up.

Cruise operators may yet feel the impact on demand the airlines are warning of, but meanwhile the sector's recent selloff looks like an overreaction.

Write to Callum Keown at callum.keown@barrons.com

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March 17, 2025 08:11 ET (12:11 GMT)

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