Cruise line stock falls after U.S. Commerce Secretary Howard Lutnick suggests taxing foreign-flagged cruise ships

On February 19, 2025, U.S. Commerce Secretary Howard Lutnick took aim at the cruise line industry, claiming these companies pay little to no U.S. taxes, promising that the Trump administration would end this “tax scam.” Lutnick would explicitly state, “None of them pay taxes ... every supertanker. None pay taxes ... all foreign alcohol. No taxes. This is going to end under Donald Trump.” Experts do not expect the proposal will succeed, noting past failed attempts to change the cruise industry’s tax structure, with five-star analyst Steven Wieczynski from Stifel Finance dismissing the situation as a “massive overreaction” and recommending people buy shares in these companies and take advantage of this slump. 

Tax changes require congressional approval, making them difficult to pass, especially in cruise-dependent states like Florida and Alaska. Additionally, cruise ships are tax-exempt under long-standing rules that also apply to cargo ships, making tax policy changes complex and unlikely. However, the threat of such a change has nevertheless instilled a great deal of hesitancy into investors, as the share prices of major cruise companies like Royal Caribbean, Carnival, and Norwegian Cruise Line have dropped significantly. Since Lutnick’s comments, the aggregate market cap of the four US-listed cruise companies (Carnival, Royal Caribbean, NCL and Viking) has declined $43bn, with their share prices dropping up to 30% as of yesterday's market close. 

Although the government is pushing for stricter tax codes, groups like the CLIA (Cruise Lines International Association) claim cruise lines already pay $2.5 billion in U.S. taxes and fees. Most cruise ships register under flags of countries like Liberia or Panama due to U.S. shipbuilding limitations and labor laws. This presents an issue as taxing foreign cruise ships could lead other countries to impose similar taxes on U.S. flagged cargo vessels. If these new tax laws are implemented, cruise lines may pass on these additional costs to customers, driving their prices up and consumer appetite down. While unlikely to go through, analysts say the looming threat of sweeping tax law change in the cruise line industry continues to weigh on stock price performance. Although conversations surrounding this potential change have spread fear among investors, many experts believe this to be an all time investing opportunity. 

Buying opportunity or more downside to come? Let us know how you feel about this situation in the comments below!

Sources:

Zelinski, Andrea. “Analysis Trump Threat Tax Cruise Lines.” Travelweekly.com, Travel Weekly, 27 Feb. 2025, www.travelweekly.com/Cruise-Travel/Analysis-Trump-threat-tax-cruise-lines.

Melloy, John, and Scott Schnipper. “Cruise Stocks Tumble after Commerce Secretary Lutnick Signals Tax Crackdown.” CNBC, 20 Feb. 2025, www.cnbc.com/2025/02/20/cruise-stocks-tumble-after-commerce-secretary-lutnick-signals-tax-crackdown.html. Accessed 23 Apr. 2025.

‌