Cruise industry coasts into the end of summer on another high note

Now that the summer is over, time to check in on the cruise industry and how the season turned out, according to travel agents surveyed by Morgan Stanley and UBS.

In their latest quarterly results (Carnival reports later in the month), Royal Caribbean Cruises (NYSE:RCL) and Norwegian Cruise Lines (NYSE:NCLH) both beat Q2 earnings expectations as strong demand for vacation experiences, including onboard spending, drove revenues higher and boosted guidance.

For Royal Caribbean (RCL), revenue was up 17% year-over-year while the company’s profit nearly doubled. Norwegian’s (NCLH) record revenue for Q2 was attributed to strong demand, with advance ticket sales setting an all-time high.

Viking’s (NYSE:VIK) results were slightly more modest than its competitors, but the company, which distinguishes itself as a luxury, river-based operator for high-income baby boomers, still enjoyed a respectable 9.1% increase in revenue for the quarter and 9.5% gain in adjusted EBITDA.

Sellers continue to see strong demand for cruises with sales volumes up, cancellations down, and pricing higher than it was last year at this time. Because of cruises booked in 2023 for 2024 departures, this year is turning out to be the best for the cruise industry. And while the pace of growth has slowed from the explosion in post-pandemic bookings, Cruise Lines International Association still expects growth to continue – albeit more modestly – reaching 39.7M passengers by 2027.

But looking into 2025, the feverish demand for post-COVID travel could start to wane with the travel industry seeing more modest growth. According to data collected by UBS, departures scheduled for the second half of 2025 are down slightly from where they were in 2023.

Industry professionals also warn that an economic slowdown will have the expected impact on travel as the cruise industry is subject to not only competitive pressure and economic headwinds, but also fluctuations in wages, fuel prices and interest rates. Fortunately, the latter will likely move in a favorable direction for cruising, but the other factors remain uncertain.

According to J.P. Morgan Research’s recent Cost of Living, only 29% of respondents still have excess savings, and 45% expect to spend less in discretionary categories over the next 12 months. While this will impact all categories heavily dependent on discretionary spending, the cruise industry should continue to be mostly insulated from the heaviest impact.

“We see the consumer increasingly focused on value within discretionary categories, with the value spread between cruises and land-based alternatives standing at 25–30% today versus 10–15% pre-pandemic,” J.P. Morgan Head of Leisure and Retailing, Matthew Boss noted. “Cruise lines have focused on improved experiences with no step down in quality or service despite inflation, further amplifying their value.”

Improved experiences weigh heavily in favor of hardware over destinations, giving a slight edge to Royal Caribbean (RCL) with its newest addition, Icon of the Seas. Coupled with RCL’s Utopia, the pair have provided a halo effect for the brand thanks to increased marketing and excitement 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 (NYSE:CCL) which recently spent $600M on its newest 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 mega-ships, the largest yet for the company, won’t debut until 2029 at the earliest. Two more Excel-class ships will come online in 2027 and 2028.

With the current fleet of 323 ships worldwide (including river ships), J.P. Morgan’s Boss expects the cruise industry will capture a very modest ~3.8% of the $1.9T global vacation market by 2028.

“Demand remains robust, with not a single historical lead indicator in the business, notably booking curve and on-board spend, signaling any softening,” Boss added.