Now that summer is over, it's time to take a look at how the cruise industry is doing and how the season turned out, according to travel agents surveyed by Morgan Stanley and UBS.
In its latest quarterly results (Carnival will report later in the month), Royal Caribbean Cruises (New York Stock Exchange:RCL) and Norwegian Cruise Lines (New York Stock Exchange: NCLH) beat second-quarter earnings expectations as strong demand for vacation experiences, including onboard spending, boosted revenue and improved the outlook.
At Royal Caribbean (RCL), revenues rose 17% year-over-year, while the company's profits nearly doubled. Norwegian's (NCLH) record revenues in the second quarter were attributed to strong demand, with advance ticket sales reaching an all-time high.
Viking (New York Stock Exchange: VIK) The results were slightly more modest than those of its competitors, but the company, which distinguishes itself as a river-based luxury operator for high-income baby boomers, still enjoyed a respectable 9.1% increase in revenue for the quarter and a 9.5% gain in adjusted EBITDA.
Sellers continue to see strong demand for cruises, with sales volumes up, cancellations down, and prices higher than this time last year. With cruises booked in 2023 with departures in 2024, this year is turning out to be the best year yet for the cruise industry. And while the pace of growth has slowed due to the post-pandemic booking explosion, Cruise Lines International Association still expects growth to continue, albeit more modestly, reaching 39.7 million passengers in 2027.
Looking ahead to 2025, however, the feverish post-COVID travel demand could start to ease as the travel sector sees more modest growth. According to data compiled by UBS, scheduled departures for the second half of 2025 are down slightly compared to those in 2023.
Industry professionals also warn that an economic slowdown will have the expected impact on travel, as the cruise industry is subject not only to competitive pressure and economic headwinds, but also to fluctuations in wages, fuel prices and interest rates. Fortunately, the latter are likely to move in a favorable direction for cruises, but the other factors remain uncertain.
According to JP Morgan Research’s recent Cost of Living report, only 29% of respondents still have excess savings and 45% expect to spend less on discretionary categories over the next 12 months. While this will impact all categories that rely heavily on discretionary spending, the cruise industry should remain largely insulated from the harshest impact.
“We are seeing an increasing consumer focus on value within discretionary categories, with the value spread between cruises and land-based alternatives now at 25-30% versus 10-15% pre-pandemic,” said Matthew Boss, head of leisure and retail at JP Morgan. “Cruise lines have focused on enhancing experiences without reducing quality or service despite inflation, further amplifying their value.”
Enhanced experiences weigh much more heavily in favor of hardware than destinations, giving a slight edge to Royal Caribbean (RCL) with its latest addition, Icon of the Seas. Together with RCL’s Utopia, the pair has provided a halo effect for the brand thanks to increased marketing and buzz ahead of Icon’s launch earlier this year. Respondents say the amenities offered on the ship matter more than private island offerings.
Which could be bad news for Carnival (New York Stock Exchange:CCL) which recently spent $600 million on its new private island experience, Celebration Key on Grand Bahama. Carnival (CCL) is beefing up its fleet to compete with Royal Caribbean (RCL), but its three new megaships — the company’s largest yet — won’t debut until 2029 at the earliest. Two more Excel-class ships will come online in 2027 and 2028.
With a current fleet of 323 ships worldwide (including river vessels), the JP Morgan boss expects the cruise industry to capture a very modest ~3.8% of the $1.9 trillion global vacation market by 2028.
“Demand remains robust, with no historical indicator in the business, particularly the booking curve and onboard spending, indicating a moderation,” Boss added.
