There was a period after the end of the cruise industry’s Covid shutdown when it seemed like only diehard cruisers would get on ships. Even though the entire industry had taken meaningful safety steps to limit the spread of Covid, being in an enclosed space with a crowd seemed like something people simply would not want to do.
It took time, but that has changed. The cruise industry will serve a record number of of passengers in 2024 and business has been booming for Royal Caribbean.
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The cruise line has benefitted from people wanting to travel, having the money to do so, but also being careful with their dollars. Cruise prices have gone up, but taking a cruise is a tremendous deal compared to visiting a theme park or even a beach resort.
Your cruise fare includes not just your cabin, but also entertainment, and unlimited food. Yes, you can upgrade your dining, spend money on soda, alcohol, and fancy coffees, and buy all sorts of excursions, but cruises inlcude more than traditional land vacations.
That’s a big part of why Royal Caribbean CEO Jason Liberty believes his cruise line has significant room to increase prices.
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Liberty led his company through some very dark days.
Image source: Royal Caribbean
Royal Caribbean has room to grow
Liberty addressed his company’s rising prices during its third-quarter earnings call. He was responding to a question from analyst Brandt Montour.
“I want to take a sort of a broader look and think about if you can kind of talk about like-for-like pricing cumulatively from — versus 2019 and just sort of level set where you think you’re at. And if you’re still trailing sort of cumulative U.S. inflation, does inflation coming down next year act as some sort of governor a little bit how strong yields can be? Or how do you think about that?,” Montour asked.
Liberty was bullish in his response.
“I think, first, just kind of starting off is when you compare [this year] to ’19 levels, whether it’s the fourth quarter, which is up about 25%. The year is up about 26% versus 2019 levels,” he said.
There are reasons for that beyond prices just going up.
“When we look at that, there’s a lot of things that are inside of that, which is not only just like-for-like growth. It’s not just the new capacity. It’s also great assets like Perfect Day, fully normalizing within our business. And while there has been a lot of growth on the pricing standpoint, a little bit of growth on the occupancy standpoint, the trends show that we continue to be able to elevate demand, elevate pricing each day,” he added.
Liberty believes that inflation is not the driver.
“And so what you see in the overall trends, is that we continue to see strong volumes — the customer’s willingness to pay more. I don’t think this is an inflation-related type of driver. I think the driver is that cruise or propensity of cruise is at a significantly high level. I think that the cruise experience is now considered to be a very mainstream vacation product,” he shared.
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Price compared to other vacation optiond remains a major driver as well.
“There’s still a significant value proposition versus land-based vacation,” Liberty said.”So, I think the combination of really understanding what our guests are looking for and leveling up our business with our brands, meeting those expectations, the ships meet those expectations, the destinations meeting those expectations. And having the tools and technology that really allow us to harvest quality demand, I think, is all leading to why we keep seeing outperformance on the yield growth side.”
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