After the pandemic ravaged the cruise industry, many questions remained about how long it would take for major cruise lines to return to normal. The answer is kind of split as Royal Caribbean International (RCL) and Carnival Cruise Line (CCL) very quickly began operating their fleets from ports in the United States.
These ships returned to service in July 2021 sailing with limited passenger capacity and many Covid related rules. Over time, the Centers for Disease Control and Prevention dropped those rules and then stopped tracking Covid on cruise ships altogether.
Now, Royal Caribbean has its entire fleet back in service while Carnival still has some work to do, according to CFO David Bernstein’s comments during the cruise line’s second-quarter earnings call.
“While our return to guest cruise operations is essentially complete, we are still evaluating some remaining deployment options, which will be referenced in our business update release,” he said. “As a result, we expect capacity increases in the range of 3% to 5% in 2023 compared to 2019.”
Carnival has also begun moving three of its Costa-branded ships to its namesake cruise line.
In many ways, the cruise industry has recovered from the pandemic, but one major problem remains, and it’s one that prospective passengers will find very appealing.
Image source: Carnival.
Carnival, Royal Caribbean, MSC, Virgin have a pricing issue
Both Carnival and Royal Caribbean, as well as competitors MSC and Virgin Voyages, have returned to sailing with ships capable of carrying their full passenger loads. In many cases, the two public cruise lines actually operate at 90% or more capacity. Neither has quite reached pre-pandemic passenger levels, but they are well on their way to getting there.
Carnival CEO Josh Weinstein shared many positives during the call, but pointed out one major issue.
“We offer a great all inclusive vacation experience, convenient, great dining and entertainment, amazing itineraries, beautiful and innovative ships and the most amazing teams on board delivering a high level of personalized service, just like you would ashore or ashore can’t find sea,” he said. “The problem is that we are valued way too high. We shouldn’t have a significant discount on land, which is exactly the case today, somewhere between 25% and 50% based on itineraries.”
In general, it’s cheaper to take a cruise — an all-food-you-can-eat vacation — than a comparable trip on land. That’s very good news for potential passengers (and what Weinstein said is very obvious to people who cruised regularly before the pandemic).
Neither MSC nor Virgin Voyages are public so they don’t report results, but you can book many voyages (there are always exceptions) on these cruise lines at prices well below what each line charged pre-Covid.
Carnival has a plan to solve its pricing problem
Cruise prices are largely driven by demand. Therefore Walt Disney (DIS) can charge practically anything it wants for access to Disney World. The parks can only accommodate a limited number of guests and demand generally exceeds supply.
Royal Caribbean, Carnival, MSC and Virgin can only increase prices if demand increases. Weinstein has some ideas on how to do this.
“Now that our brands have increased their advertising investments, we will increase awareness and awareness and actively engage with those who are new to a cruise. While we still carry a higher proportion of repeat guests, we are seeing an improving trend new to cruise and are already two-thirds of the way back to 2019 levels,” he said.
Promotion (and low prices) can lure customers who have never cruised before, but that’s not the only way Carnival anticipates to get these passengers on board.
“About a third of our guests have been cruise newcomers in the past. And as you probably know, word of mouth and advertising are two of the most important drivers for cruise newbies,” said the CEO. “In terms of word of mouth, after the break we have rebuilt our army of advocates who are getting off the ships and spreading the word about the unparalleled holiday experiences we deliver day in and day out.”
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