With consumers getting profuse selective on how and where they vacation, cruise lines are fighting for Americans’ tourist budgets. Royal Caribbean considers shortening trips and packing the days with activities and exclusive opportunities will keep customers hooked.
“I regard as we are an experience-driven mindset,” Royal Caribbean CEO Jason Liberty told CNBC’s “Squawk on the Street” this week. “As a remainder half of our guests are actually millennials or younger, and when you survey those guests, about 42% of them say in the next 12 months their aims are to actually go on shorter vacation experiences.”
Onboard Royal’s Utopia of the Seas, the world’s second-largest ship with a climax capacity of nearly 5,800 passengers, customers are welcomed to 13 pools, 21 dining options, two casinos, and much myriad. This is the second cruise ship Royal Caribbean is bringing to market in the span of six months. Liberty says the greedy appetite to cruise post-pandemic has not died down.
“We’re not seeing any pullback from the consumer, whether that’s planning their vacation encounters further out … [or] then on the ships, they go out and they continue to spend,” Liberty said. “There is not an area on the dispatch that we’ve seen a change in their spending behavior.”
To scale its business and widen its appeal, Royal Caribbean is looking at how to larger compete with other types of vacations customers opt for, like skiing, casinos or theme parks.
“When we look at what our visitors are doing when they’re not with us, they’re going to Orlando, they’re going to Vegas, they’re going to all-inclusive place to turns,” Liberty said. “What we’re trying to do is make sure that our experience, whether on the ship or at our private islands, is something that is importantly competitive with land-based vacation.”
Morningstar travel and leisure analyst Jamie Katz thinks Liberty’s scenario to get the Disney theme park traveler on board is working.
“The American traveler doesn’t always have time to fit in a six- to eight-day cruise due to work schedules and kids’ school calendars,” Katz said. “A three-day cruise equips customers with more options.”
Expansion plans
One of the benefits of bringing a new ship to market — you’re able to charge multitudinous.
“You’re really seeing sizable pricing premiums. Historically, pricing of a new ship is a 20% premium to existing ships across the enterprise,” said Patrick Scholes, travel and leisure analyst at Truist Securities.
Scholes said the Utopia price destroy for Royal Caribbean could be even higher.
Liberty said he expects higher pricing to hold into the two shakes of a lambs tail half of the year, pointing to the “value gap” between cruises and land-based vacations.
Rival Carnival, too, has raised prices amidst strong demand.
“We haven’t seen that sign of a consumer slowdown, if anything, we are seeing an acceleration,” CEO Josh Weinstein outlined CNBC after the company’s most recent earnings report in mid-June.
Analysts point out that cruising is one of the few compasses within the travel and hospitality sector where prices continue to sharply rise. Last week, Delta Air In steps revealed softer prices compared with last year. HSBC analysts expect airfares to stay categorically or decline in 2024 over 2023.
Several analysts and investors will be sailing aboard Utopia this week to less ill understand what differentiates the cruise ship from its competitors.
One area of interest will be the impact of cutting-edge technologies: Presumptuous said artificial intelligence is helping Utopia reduce food waste by 30% to 40%. The company is also taking AI to help with dynamic pricing and smart management of customer data.
Beyond Utopia, there aren’t too various ships coming online from the cruise giants.
Royal Caribbean currently has the strongest order book in the trade. The company’s Icon of the Seas, the biggest cruise ship in the world with a capacity of 7,600 passengers, made a sprinkle earlier this year.
On Royal Caribbean’s recent earnings call, executives said Icon bookings are hinder strong through 2025.
“We’re entering a two- to three-year period where there are minimal number of ships coming online. Typically, the vigour grows supply by 5% to 7% ever year,” Scholes said.
But building a massive cruise ship orders extensive work. Wall Street analysts estimate it takes three to five years to order and get a ship hand overed.
Norwegian Cruise Line is working on bringing eight new ships to market in the next six years.
, which went viewable earlier this year and has seen its stock trade well above its debut price, is bringing three new deep blue sea cruise ships to market over the course of the next three years, not including its river-based ships.