Shares of major cruise lines hit this week after incoming U.S. Commerce Secretary Howard Lutnick stirred things up with his comments on cruise industry taxes. Speaking to Fox News, Lutnick accused cruise companies like Carnival (CCL), Norwegian (NCLH), Royal Caribbean (RCL), and Viking (VIK) of avoiding U.S. taxes by registering their ships in countries like Liberia and Panama. Lutnick stated that after Elon Musk’s DOGE cuts $1 trillion in government costs, they will eliminate all the tax scams, which the cruise lines are taking part in as “None of them pay taxes…(and) This is going to end under Donald Trump.”
Lutnick is right that cruise lines save on taxes by registering ships in other countries but calling it a “tax scam” is not entirely accurate, as it’s legal. The real issue is whether the government should make changes to ensure companies pay their fair share of taxes.
However, some analysts see the stock decline as the market’s overreaction.
Investors Reacted Quickly, Maybe Too Quickly
Investors were quick to react, causing cruise stocks to drop. Royal Caribbean took the biggest hit, falling over 11% in one day, while Carnival fell by 5.9%, Norwegian by 4.9%, and Viking by 3%. The sharp decline reflected fears that a potential tax crackdown could hurt profits for an industry that has long enjoyed tax exemptions under U.S. law.
However, financial analysts believe the market overreacted. Five-star analyst Steven Wieczynski from Stifel Financial noted that similar tax threats have often arisen over the past 15 years but have never led to actual changes. Stifel even called Lutnick’s comments “misinformed” and suggested the stock drop was a “buying opportunity.”
Citi also downplayed the chances of cruise companies suddenly becoming full U.S. taxpayers, calling it “exceedingly low.” However, it noted that even discussing such changes puts unwanted pressure on the industry. Citi suggested that if any tax changes happen, cruise operators might pay some taxes as a compromise rather than a complete overhaul of their tax structure.
Meanwhile, the Cruise Lines International Association (CLIA) defended the industry, stating that cruise operators already contribute nearly $2.5 billion in U.S. taxes and fees annually – 65% of their global tax payments. CLIA also reported that the cruise industry contributed $65 billion to the U.S. economy in 2023 while supporting around 300,000 jobs. Industry experts believe significant tax changes are unlikely, but it appears that the uncertainty has unsettled investors in the short term.
Tipranks’ Cruise-Lines Comparison
Use Tipranks’ comparison tool to compare how each company have performed after Lutinck’s comments.
