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The cruise industry has weathered the economic storms of the COVID pandemic and come out the other side with record-setting revenue, accelerated bookings, and forecasts for 2024 that all point to one thing…cruising is back!
No stranger to a crisis, the cruise industry has navigated turbulent waters before: The SARS epidemic, September 11 terrorist attacks, and the 2008 financial crisis all weighed on the travel industry with cruises taking the brunt of travel restrictions.
But all of these were barely a ripple compared to the tsumani of COVID-19, perhaps the largest crisis faced by cruise lines since the Titanic left Southampton.
In just the first quarter of 2020 when the lockdowns began, there were 54 infected ships, 2,592 sick crew members, and 65 passengers who died while cruise ships around the world became the new home for stranded passengers.
As the lockdowns were lifted and travel resumed some normalcy, the cruise industry limped back into operation with some stringent restrictions. All passengers had to be vaccinated against COVID, ships needed to obtain a COVID-19 Conditional Sailing Certificate from the Centers for Disease Control and Prevention, and cruise operators offered very limited itineraries.
But even with the added restraints of social distancing, cabin-fevered travelers weren’t deterred. Flush with cash from the federal government, tourists flocked to cruises in a frenzy of “revenge travel.” Experience spending soared and although the recovery wasn’t meteoric, it was unquestionably impressive.
For the big three cruise operators — Carnival Corp. (NYSE:CCL), Royal Caribbean Cruises (NYSE:RCL), and Norwegian Cruise Line (NYSE:NCLH) — total revenue amounted to an anemic $77.6M in the last quarter of 2020, a fraction of pre-pandemic levels. By Q4 2021, total revenue was less than a third of pre-pandemic levels, and by Q4 2022, it was a little less than half. But by the end of 2023, revenue for the three majors exceeded pre-pandemic levels by almost 20%.
For Royal Caribbean (RCL), total revenue in the most recent quarter reported, Q3, in late October exceeded pre-pandemic levels by more than 30% to a record-breaking $4.2B. And Q1 this year will include revenue from Royal Caribbean’s latest ship, the Icon of the Seas. Billed as the world’s largest cruise ship with the capacity for over 5,600 passengers, Icon alone will likely lift Q1 revenue for Royal Caribbean by 5%. Q4 results get reported on Feb. 1.
For Carnival (CCL) — the largest of the three major cruise operators — Q4 revenue set an all-time record high of $6.8B, breaking the pre-pandemic high by $2B. In their most recent earnings report on Dec. 21, the company said it was entering 2024 with its “best booked position on record, for both price and occupancy” and total customer deposits in Q4 of $6.4B exceeded the previous record by 25%.
The smallest of the big three, Norwegian Cruise Lines (NCLH), operates 32 ships with room for over 66K passengers. Prior to the pandemic, Norwegian earned $1.9B in revenue for a profit of $450M. By the next year, revenue capsized to just $6.5M for a loss $677M, and down to only $3.1M for a loss of $1.4B by the quarter ending March 31, 2021. At that time, the company had suspended all voyages across all three brands and did not plan to resume operations – albeit on a very limited schedule – until July 2021.
But as the saying goes, a rising tide lifts all boats, and so too have Norwegian’s fortunes. As the industry bounced back, Norwegian’s (NCLH) revenue for the most recent quarter swelled to more than $2.5B for a profit of $345M.
But rough seas could be ahead.
Norwegian (NCLH) warned of a deteriorating outlook due to the conflict in the Middle East which has impacted shipping through the Red Sea, while Carnival (CCL) cautioned investors that geopolitical uncertainties coupled with higher fuel costs could dampen profits in 2024. Royal Caribbean (RCL) has already cancelled two voyages to avoid the Red Sea and expects cancelled and adjusted itineraries to impact Q4 earnings by about $0.05 per share.
So, without the tailwind of “revenge travel,” the industry as a whole could see more a modest growth trajectory. This could be exacerbated by lingering geopolitical risks, the potential for an economic downturn, and constrained discretionary spending from inflation. These risks — likely transitory — could influence luxury travel. But thanks to its affordability, flexible schedules, and far-reaching voyages, the cruise industry is poised to fire on all cylinders.
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