Recent channel checks show the weakest cruise demand in three years while concerns over tariffs, the economy and the European travel experience continue, Morgan Stanley analysts said in a note Thursday.

The analysts said channel checks show a sharp drop in cruise demand, with the most negative sentiment in three years from US travel agents. Most reported lower bookings month-over-month and year-over-year, with travelers booking closer to departure and seeking better value.

While base prices remain steady, cruise lines are offering more promotions and add-ons to attract customers. Luxury cruises are holding up better than budget options and the Caribbean is performing better than Europe, according to the note.

The analysts said that, as a result, 2026 earnings per share forecasts have been cut by 9% for Carnival (CCL), 5% for Royal Caribbean (RCL), and 8% for Norwegian Cruise Line (NCLH).

Price targets have been lowered: Carnival to $21 from $25; Royal Caribbean to $220 from $270; Norwegian to $21 from $22, and Viking (VIK) to $47 from $49. The analysts also said they have upgraded Carnival to equalweight from underweight, as the risk-reward balance now looks more favorable, and the previous rating was based on a different macro outlook.

"Beyond the broader macro pivoting up/down, our analyses of prior recessions and valuation methodology could be inappropriate if the new US administration imposes taxes on Cruise," the analysts said.

Repealing the Jones Act or imposing a head tax on passengers from US ports could reduce earnings per share and impact capital returns and valuation multiples compared to historical trends, they added.