• In Q1 2022, Carnival (CCA) recorded revenues of $1.6 billion.
• Management expects its entire fleet to be fully operational just in time for the summer season
• Cruise lines may need to create a fuel surcharge to mitigate rising oil prices.

The travel industry still remains in the doldrums more than three years after the start of the pandemic. Initial recovery was delayed due to Delta and Omicron variants. However, things finally seem about to turn a corner.

Unfortunately, the Russian-Ukrainian crisis occurred and caused commodity prices to skyrocket. This is the situation carnival society (NYSE:CCA) Finds himself. The stock is still trading at a discount on the prospect of a travel boom. But the uncertainty of high oil prices is weighing on CCL stock.

CCA

carnival society

$18.84

Carnival business is back

After two years of difficulties due to the COVID-19 pandemic, Carnival’s business operations are booming. In the first quarter of 2022, the company recorded revenue of $1.6 billion. That was a far cry from the $26 million in the first quarter of 2021 when the pandemic brought the cruise industry to a halt.

However, this figure was not yet a return to normal for Carnival. The company saw a drop in bookings and an increase in cancellations due to the surge of Omicron earlier this year. The requirements and availability of pre-travel testing, as well as positive test results, have also disrupted the company’s business operations. Overall, the Carnival recorded an occupancy rate of around 54% in the first quarter of 2022.

Management sees these trends continuing to improve as the world finally begins to move beyond the Covid-19 pandemic. Weekly booking volumes are trending up and are at an all-time high post-pandemic. According to management, as of March 22, the company’s capacity utilization reached 75%. They expect their entire fleet to be fully operational just in time for the summer season, the most profitable season in the cruise industry.

High oil prices a tailwind

Just like when the industry is about to get back on its feet, another challenge presents itself. The conflict between Russia and Ukraine has caused a spike in oil prices. The resulting increase is felt by many industries, but the travel industry could be among the hardest hit.

Like airlines, cruise lines are a high fixed cost business. One of the biggest costs for a company like Carnival is fuel, which can account for up to 20% of its operating expenses. A small change in fuel prices can have a significant impact on Carnival’s earnings. Therefore, the strong increase we have seen in recent months could easily turn the operating result from green to red.

In the past, cruise lines have mitigated these costs by imposing a “fuel surcharge”. Since the financial crisis of late 2007, when oil prices hit $100, Carnival has included a clause in its contract for fuel-related charges. Carnival’s contract says it could impose a fuel surcharge of $9 per person that it can collect even if “the cruise fare has been paid in full”

The company has yet to impose a fuel-related cost on its customers. There’s no doubt that Carnival’s management is wary of alienating customers as the industry tries to recover from pandemic lows.

Your takeaway meals

I believe CCL shares could be a decent investment at these levels. Economies are at an all-time high due to the COVID-19 pandemic. There is a threat of inflation and falling consumer confidence. But after being stuck at home for nearly 3 years, I think a lot of people would be willing to pay the extra cost.

Carnival has shown in the past that it is able to pass on fuel costs. If the travel industry continues to recover, there could be more upside for CCL shares from these levels. I would keep CCL stocks on your watch list.

On the date of publication, Joseph Nograles had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.