Cruise vacations in the past year have emerged as a popular option among consumers in search of cheaper ways to travel, but U.S. cruise companies are signaling that itineraries will get costlier in the coming months.
After discounting aggressively following years of COVID-era testing requirements and restrictions, cruise operators such as Royal Caribbean Cruises (RCL.N) and Carnival Corp (CCL.N) are looking to raise prices as occupancy levels approach pre-pandemic levels.
Cruise vacations before the onset of the pandemic were on average 15% to 20% cheaper than a land-based vacation, Truist hotel and cruise analyst Patrick Scholes said. That gap has widened to 50%, he added.
"(We are) working hard to close the outrageous and unwarranted 25% to 50% value gap to land-based offerings over time," Carnival Corp CEO Josh Weinstein said on a post-earnings call in June.
Cruise operators lowered prices to lure passengers onboard following the pandemic, banking on onboard spending that has now reached record levels.
Onboard spending in the second quarter rose 49.9% for Norwegian Cruise Lines (NCLH.N), compared with the same period in 2019, before the pandemic. Onboard spending rose about 36.8% for Royal Caribbean Cruises and 17.2% for Carnival in the same period.
"There's a lot more nickel-and-diming than there used to be," said Bob Levinstein, CEO of Cruise Compete, a marketplace for cruise quotes, noting charges for room service and other amenities used to be free.
Still, companies like Norwegian and Carnival say labor costs, marketing, and port and freight expenses are on the rise, offsetting gains from robust demand and higher ticket prices.
"We're looking at growth with respect to price increases as we get to 2024, 2025 and 2026," Carnival's Weinstein said.
Royal Caribbean's CEO Jason Liberty echoed Weinstein's view on the value gap to land-based vacation and said on a post-earnings call late in July that it would help the company raise ticket prices further.
CHEAPER THAN DISNEY WORLD
A seven-night all-inclusive Carnival cruise vacation that sails to the Caribbean costs $3,988.80 for a family of four, while a seven-night theme park vacation at Walt Disney World in Orlando, Florida costs $5,810.79, according to data provided by travel agency Premier Custom Travel.
People are responding to the savings proposition, with about 73% of those who have never cruised saying that they would consider such a vacation, according to data from Cruise Lines International Association.
Carnival and Royal Caribbean said the percentage of guests who were new to cruising surpassed 2019 levels.
"There doesn't appear to be any problems with the price raises taken so far," said Barclays analyst Brandt Montour. They've raised prices 10% to 15% for 2023, compared with 2019 levels, and it doesn't seem like the consumer is pushing back on that latest price hike, he said.
