“I’ve been waiting to catch this ice show,” wrote Jim on X this month, as the Wisconsin-based cruise fan excitedly posted a video of the world’s largest ice rink at sea.
The arena, which he described as a “dramatic upgrade from all previous ships,” is one of the features that helped Royal Caribbean’s Icon of the Seas make headlines on its fully booked maiden voyage in January.
The debut of the world’s biggest cruise ship, which has a capacity of 7,600, caps a remarkable recovery by the global cruise industry, which in four years has transformed from one of the highest-profile corporate victims of the pandemic to one of tourism’s fastest growing sectors.
Bookings are surging, buoyed by new and younger customers being attracted to cruises as a cheaper option than land-based resorts as well as longtime fans indulging in “revenge travel”.
A wave of investor interest helped carry Viking Holdings to the second-largest initial public offering in the US this year when it listed earlier this month. The Bermuda-based group, whose offerings include an 87-day Arctic to Antarctica journey costing from £61,895, now has a market capitalisation of $12.7bn.
Its IPO raised $1.54bn, providing much-awaited gains to US private equity group TPG and Canada’s largest pension fund, CPP Investments, as customers continue to book trips.
“We are already some 35 per cent sold [for 2025] . . . our guests book far in advance,” said Viking founder and chief executive Torstein Hagen.
Overall 34.7mn passengers worldwide are expected to take a cruise this year according to trade body the Cruise Lines International Association — 17 per cent more than in 2019. The industry exceeded pre-pandemic levels by 7 per cent last year, marking a contrast to overall international tourist arrivals, including air passengers, which remained down 12 per cent between 2019 and 2023.
The level of advance bookings is allowing Viking to expand: in December it ordered 10 river cruise ships for delivery by 2026, to sail popular itineraries such as the Rhine, Danube and the Seine rivers.
Viking’s competitors are also in expansion mode. Norwegian Cruise Line announced in April its largest-ever order of eight vessels, scheduled for delivery between 2026 and 2036. Carnival Cruise Line announced earlier this year its first new-build order in five years.
“There are a number of lines that have got a reasonable number of ships in the pipeline, which is driven by the confidence in not only the recovery through the sector, but the future growth of it,” said Alistair Pritchard, lead partner for travel and aviation at Deloitte.
Royal Caribbean shares have surged more than 80 per cent over the past 12 months, while Carnival shares are up more than 35 per cent.
The question now is whether the industry can retain this momentum — and whether demand will be as high by the time these new vessels arrive.
Since the US Centers for Disease Control and Prevention stopped classifying ships based on their vaccination rates in July 2022, demand has been so strong that some analysts even wonder if the industry is trapped in a demand bubble.
“There’s the concern among people [if we are] in a demand bubble . . . and [if] there is a revenge travel bubble in cruise lines, like we saw with US resorts,” which benefited from an influx of US travellers amid international travel restrictions, said Patrick Scholes, a travel sector analyst for Truist Securities.
“I do think we are in a period of accelerated demand and it’s going to be hard to maintain these massive growth rates that we’ve been seeing,” he added.
Orders for vessels, which will take years to arrive, carry the risk that by the time they do, demand will have tempered.
“Once you put in order for that ship, your overheads are not going to change, and you can’t pay a crew if you don’t fill the ship,” said Bob Levinstein, the chief executive of cruise marketplace CruiseCompete.com. Unsold cruise cabins also mean fewer passengers to spend money on restaurants, excursions and casinos — which provide significant income. “Rule number one is always fill the ship, fill the ship, fill the ship,” he added.
Although they refinanced when interest rates were at lower levels, many cruise lines are carrying more debt as a result of pandemic shutdowns. Norwegian Cruise ended 2023 with a $13bn debt pile, double that compared to the end of 2019. Carnival’s net debt balance meanwhile has exploded from $10bn to $30bn.
Meanwhile the price of cruises remains subdued in comparison to runaway increases for hotel rooms and flights.
Cruise vacations were 27 per cent less expensive than land-based all-inclusive resorts, said Goldman Sachs analyst Lizzie Dove, although this gap has narrowed from 50 per cent at the height of the pandemic.
“Despite the companies operating in an oligopoly, cruise pricing has not been able to keep pace with inflation or the broader lodging industry,” Dove said.
Cruise companies have for decades offered last-minute discounts in order to fill the cabins, prompting repeat cruisers to hold off hoping for a better price.
The industry’s cheaper operating costs compared with hotels and resorts have contributed to affordability. The majority of staff come from relatively low-cost countries such as the Philippines, and cruise lines typically pay little corporation tax, analysts say.
Passenger ticket revenue per occupied berth day last year was 7 per cent higher than 2019, trailing overall US lodging’s average daily rate increase of 18 per cent, according to Dove’s analysis.
Capacity is also a factor. With supersize ships such as the Icon of the Seas arriving, “we have seen a little bit of softening prices over the last six months or so where capacity comes in”, said Deloitte’s Pritchard.
The flipside for cruise operators is that demand, for the foreseeable future, is steady and shows little sign of strain even as customers’ personal finances become more stretched by inflation.
The lowest cost of a 7-night cruise on the Icon of the Seas touring the western Caribbean in February — the next available date at such a rate — is $1,511, according to Royal Caribbean’s website.
“Cruising still remains an exceptional value proposition,” chief executive Jason Liberty said in an earnings call last month, although he admitted he wanted to raise prices. “Customer sentiment remains very positive,” he added “Looking to the rest of 2024, the year is shaping up to be exceptional.”
The company lifted its annual profit forecast for a second time after posting net income for the first quarter of $360mn compared to a net loss of $48mn a year earlier.
Norwegian Cruise Line also increased its full-year guidance after posting record bookings for the first three months of the year. Chief executive Harry Sommer said consumer sentiment was “healthy and resilient”.
Cruise lines and analysts argue that the industry’s competitive prices compared with other resorts have attracted young “new-to-cruise” passengers.
Bolstered by family-friendly attractions both in ships and private islands in the Caribbean and in the Bahamas, nearly half of the company’s guests were millennials or younger, with the number of new-to-cruise passengers increasing 16 per cent from a year before, Royal Caribbean added.
Prospective passengers also have more options than before with higher-end operators expanding and the ultra-luxury market betting that cruises will remain popular.
“We’re totally different [from] the big guys” said Viking’s Hagen. The operator targets customers aged at least 55 and bans passengers younger than 18. “Our ships are small and I think that’s increasingly what grown-ups want to see.”
Additional reporting by Alexandra White
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