As consumers increasingly choose how and where they vacation, cruise companies are competing for U.S. tourism budgets. Royal Caribbean He believes that shortening trips and filling days with exclusive activities and opportunities will keep customers hooked.
“I think we’re driven by experience,” Royal Caribbean CEO Jason Liberty said on CNBC’s “Squawk on the Street” this week. “More than half of our guests are actually millennials or younger, and when you survey those guests, about 42% of them say their plans in the next 12 months are to go on shorter vacation experiences.”
On board Royal Utopia of the Seas, the world’s second-largest ship with a maximum capacity of nearly 5,800 passengers, customers are greeted with 13 pools, 21 dining options, two casinos and much more. This is the second cruise ship Royal Caribbean has brought to market in six months. Liberty says the voracious appetite for post-pandemic cruising has not abated.
“We haven’t seen any consumer pullback, whether it’s planning their vacation experiences for later… (or) on board, where they go out and continue to spend,” Liberty said. “There’s no area on board where we’ve seen a change in their spending behavior.”
To expand its business and attract more customers, Royal Caribbean is looking at how to better compete with other types of vacations that customers choose, such as skiing, casinos or theme parks.
“When we look at what our guests do when they’re not with us, they go to Orlando, they go to Las Vegas, they go to all-inclusive resorts,” Liberty said. “What we’re trying to do is make sure that our experience, whether it’s on the ship or on our private islands, is something that’s very competitive with vacations on land.”
Morningstar travel and leisure analyst Jamie Katz believes Liberty's strategy to attract Disney theme park travelers is working.
“The American traveler doesn’t always have time to take a six- to eight-day cruise because of work schedules and children’s school schedules,” Katz said. “A three-day cruise gives customers more options.”
Expansion plans
One of the benefits of putting a new ship on the market is that you will be able to charge more money.
“You’re already seeing significant price increases,” said Patrick Schulz, travel and leisure analyst at Truist Securities. “Historically, a new ship is priced at a 20% premium over existing ships across the industry.”
Utopia's price tag for Royal Caribbean could be even higher, Schulz said.
Liberty said he expects higher prices to continue into the second half of the year, citing a “value gap” between cruises and land vacations.
competition CarnivalIt also raised its prices amid strong demand.
“We have not seen any sign of consumer slowdown, but rather, we are seeing acceleration,” CEO Josh Weinstein told CNBC after the company’s latest earnings report in mid-June.
Analysts point out that cruises are one of the few areas of the travel and hospitality sector where prices continue to rise sharply. Last week, Delta Air Lines Airfare prices have dropped compared to last year. HSBC analysts expect airfare prices to remain flat or fall in 2024 compared to 2023.
Several analysts and investors will be aboard Utopia this week to better understand what sets the cruise ship apart from its competitors.
Among the areas that will be of interest is the impact of advanced technologies: Liberty said AI is helping Utopia reduce food waste by 30% to 40%. The company is also using AI to help with dynamic pricing and intelligent management of customer data.
Aside from Utopia, there aren't many ships coming online from the cruise giants.
Royal Caribbean currently has the strongest order book in the industry. The company’s Icon of the Seas, the world’s largest cruise ship with a capacity of 7,600 passengers, was a huge success earlier this year.
On Royal Caribbean's latest earnings call, executives said ICON bookings would remain strong through 2025.
“We are entering a two- to three-year period where the number of ships entering service is very small. Typically, supply in the industry grows by 5% to 7% a year,” Scholz said.
But building a massive cruise ship is a labor-intensive undertaking. Wall Street analysts estimate it takes three to five years to order and deliver a ship.
norwegian cruise line It is working on introducing eight new vessels to the market over the next six years.
Viking JourneysThe cruise company, which went public earlier this year and saw its shares trade well above their launch price, plans to introduce four new cruise ships to the market over the next three years, excluding river ships.
Correction: This story has been updated to reflect the correct number of new cruise ships Viking will bring.
