Whatever happens with a pandemic over the next few weeks and months, I think 2022 will be a crucial year for the Carnival (LSE: CCL) share price.
After nearly two years of disruption, huge losses, and emergency cash calls, the group needs to get itself firmly back on track. Unfortunately, there is no guarantee it will start rebuilding in 2022.
I think three different scenarios are likely to dictate the stock’s performance in the year ahead.
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Carnival share price scenarios
In the best-case scenario, the economy will continue to reopen in 2022. Consumer confidence will return. The company will report a significant increase in bookings as well as occupancy on its cruises.
The company may also benefit from a decline in stringent Covid testing requirements. These have added considerable costs to its operation. When these costs are removed, profit margins will increase, helping the group’s recovery and cash generation.
In the base-case scenario, and the one that I think is most likely for the year ahead, bookings and occupancy will continue to increase from last year’s depressed levels. Although the recovery will be relatively slow compared to the best-case scenario, it will provide much-needed cash flow for the company to start chipping away at its debt pile and substantially reduce losses.
There could be a return to March 2020 conditions in the worst-case scenario. For the first few quarters of 2020, Carnival’s revenues plunged to zero. It went from earning around $5bn a quarter to nothing almost overnight.
As a result of this collapse, management had to pull out all the stops to try and raise funding to keep the lights on. It nearly failed. If the US Federal Reserve had not stepped in to provide funding for the global capital markets, it is unlikely the company would have survived the initial shock in the first half of 2020.
Company outlook
As I noted above, I think the base-case scenario is the most likely outlook for the Carnival share price next year. Considering how much disruption the first set of lockdowns caused, it seems unlikely the world will shut down again.
What’s more, most of Carnival’s voyages set sail from Florida. This state has stayed away from imposing the sort of severe restrictions some countries have employed around the rest of the world. As such, I think the group will likely continue to see rising demand for its offer.
Therefore, I think the company will continue to recover in 2022. This could be good news for the Carnival share price. As sales and earnings rebound, the stock should reflect this growth.
Still, some investors may continue to give the business a wide berth until there is more certainty about the outlook for the travel industry.
Considering the risks outlined above, I would buy the stock, but only as a speculative position for my portfolio.
