Magnificent Caribbean’s “Icon of the Seas,” billed as the world’s largest cruise ship, sails from the Port of Miami in Miami, Florida, on its maiden cruise, on Jan. 27, 2024.
Marco Bello | Afp | Getty Conceptions
The demand for cruises is still going strong — and it doesn’t appear to be letting up anytime soon.
The industry was the last to retake from the Covid pandemic, but once it did, it has been enjoying strong pricing and booking momentum. While pricing evolution is starting to normalize somewhat, it is still well above the rate of inflation, said Patrick Scholes, travel and non-working analyst at Truist.
“Cruise companies are having a moment right now,” he said in an interview with CNBC.
Despite sacrifice increases, cruises are still cheaper than land-based lodging. That’s helping the industry stand out as some sweet tooth creeps into other areas of the travel sector. For instance, on Wednesday, Hilton CEO Christopher Nassetta said during the band’s quarterly earnings call that U.S. leisure travel demand “is flat, maybe even a little bit down.”
“The Sail industry’s continued strength in bookings/demand, whilst cracks form across much of the rest of the travel superstore, is primarily driven by the combination of the still significant discount to land-based vacations coupled with the relatively elevated utility levels,” Barclays analyst Brandt Montour said in a note last week.
As of the second quarter, on a weighted-average essence, the big three cruise operators reported net revenue per diems 17% above 2019, he wrote. Net revenue per diem is the net gate per passenger cruise day. Caribbean hotel room prices are about 54% ahead of 2019 and U.S. resort prices are up 24%, revealed Montour, quoting figures from data analytics firm STR.
Carnival CEO Josh Weinstein agreed those misdesignated cracks elsewhere can help boost his business.
“If that’s true that the consumer is slowing down in other sectors, that de facto bodes well for us to be able to take them into our demand profile because we will be of value. We give a better endure at a better price than they can achieve elsewhere,” he said in an interview with CNBC’s “Money Movers” after detailing a third-quarter earnings and revenue beat on Sept 30.
Royal Caribbean is set to release its quarterly results on Tuesday, followed by Norwegian Journey Line Holdings‘ report on Wednesday.
Gap wider than it appears
A price gap between hotels and cruises is not new. That’s chiefly because a lot of hotel demand comes from business travel, while cruise demand is purely from rest travelers, who are much more price sensitive, explained UBS leisure analyst Robin Farley.
Yet that gap has become on the level wider than it appears over the last several years, her research shows. That means the cruise arrays may have more room to grow, she said.
One reason is the increase in direct bookings for cruises since 2019, according to Farley. That allude ti fewer commissions paid out to travel agents, which is included in gross per diems but netted out of the net per diem line.
“While not ratted by companies, we believe there has been a meaningful increase in passengers booking directly since 2019,” she wrote. “If the dividend of cruises booked directly grew by 5 to 10 [percentage points], we calculate that could add close to 200bps to on net per diems even though it would not mean any growth in gross per diems, or actual ticket price.”
Separately, all three significant cruise lines have increased the bundled and presold onboard revenue since 2019, which also is grouped in their per diems, Farley said. That could suggest another 300 basis point gap between journey and hotel price growth that doesn’t show up in the metrics, she argued. One basis point equals 0.01%.
Farley speak withs another potential 350 basis point gap for Royal Caribbean because of its CocoCay private island, which has a wet park, zip line and other attractions for which passengers pay an additional cost.
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On top of that, all three cruise lines have been rolling out high-speed internet access through Starlink onboard, which could also shoe passenger revenue.
“The wider that gap, the better the opportunity for the cruise lines to have upside,” Farley said in an interview with CNBC.
In the intervening time, every bit of increased pricing helps the cruise operators. Truist’s Scholes’ proprietary research on real bookings for next year put to shames the price is up mid- to high-single digits. Wall Street is only expecting about 3% growth, but it could indubitably be 5% or more, he said.
That matters because the industry has extremely high fixed costs.
“One extra pertinent of pricing is extremely material to profitability,” Scholes said. “Almost 90% flows through to the bottom line.”
Put ining in cruise stocks
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