The Royal Caribbean cruise ship ‘Explorer of the Sea’.
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Shares of cruise lines tumbled Thursday after Commerce Secretary Howard Lutnick suggested the Trump administration would crack down on taxes paid by the companies.
“You ever see a cruise ship with an American flag on the back?” Lutnick said in an appearance late Wednesday on Fox News.
“None of them pay taxes … every supertanker. None pay taxes … all foreign alcohol. No taxes. This is going to end under Donald Trump,” said Lutnick.
Shares of Carnival dropped 5%, Royal Caribbean lost 7%, Norwegian Cruise Line fell as much as 10% and
Viking Holdings weakened by as much as 7.7%.
Analysts at Stifel Financial called the selling in cruise stocks a “massive overreaction,” and recommended investors use the slump to buy the names “on weakness.”
“[T]his is probably the tenth time in the last 15 years we have seen a politician (or other D.C. bureaucrat) talk about changing the tax structure of the cruise industry,” wrote analysts led by Steven Wieczynski. “Each time it was presented, it didn’t get very far.”
“[F]om a tax standpoint the cruise industry is embedded under the cargo industry in the eyes of the Internal Revenue Service,” Stifel wrote. “That would mean the entire cargo industry would have to be turned upside down even before they got to the cruise industry, which is a sliver of the size of the cargo industry.”
The cruise industry might respond by moving their corporate headquarters outside the U.S., reducing the number of jobs kept in the U.S., the report said. “With 90%+ of their business being conducted in international waters, it would then be impossible for the U.S. (or any other entity) to target the cruise operators.”
Stifel has buy recommendations on six cruise industry stocks: Carnival, Royal Caribbean, Norwegian, Viking as well as Lindblad Expeditions Holdings and OneSpaWorld Holdings.
“Cruise lines pay substantial taxes and fees in the U.S.— to the tune of nearly $2.5 billion, which represents 65% of the total taxes cruise lines pay worldwide, even though only a very small percentage of operations occur in U.S. waters,” said the Cruise Lines International Association, in a statement. “Foreign flagged ships that visit the U.S. are treated the same for taxation purposes as U.S. flagged ships visiting foreign ports, which provides consistent reciprocal treatment across international shipping.”
