Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge
Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Pent-Up Demand Driving Record Advance Bookings
After nearly two years of cruiser quarantine, the dam finally burst in 2022. With most Covid-related travel restrictions lifted, cruisers wasted no time booking their long-awaited voyages. The result? Record-breaking advance bookings for many cruise lines.
Royal Caribbean reported that by the end of January 2022, bookings had reached historically high levels. In just the first three weeks of the year, the cruise giant saw reservations increase 25% versus 2019. Norwegian Cruise Line Holdings also boasted a record booking week in January. While the company didn’t disclose specifics, CEO Frank Del Rio said it was the highest single booking week in NCL’s 55-year history.
The story was much the same for smaller cruise operators. Victory Cruise Lines saw its highest booking levels ever in Q1 2022. American Queen Steamboat Company reported the best first quarter for bookings and revenue in its history. Across the industry, advance bookings were up 10-15% for 2022 and already strong for 2023.
Cruise enthusiasts cite pent-up demand after two years of cancellations and restrictions. With vaccination requirements easing, cruisers are eagerly booking long-postponed vacations. There’s also strong demand among first-time cruisers looking for a unique kind of getaway after being cooped up at home.
The surge in bookings is a very positive sign for cruise lines after facing heavy losses since early 2020. While some uncertainty remains, the optimistic booking trends suggest cruisers are confident to set sail once again. Cruise lines are ramping up marketing campaigns to capitalize on this momentum.
Strong advance demand will be key to profitability as cruise lines continue sailing at reduced occupancy early in the recovery. If booking strength continues as projected, the industry could approach its lucrative pre-pandemic revenue pace faster than expected.
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- Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Pent-Up Demand Driving Record Advance Bookings
- Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Cruise Lines Optimistic Despite Economic Uncertainty
- Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Strong Loyalty Among Cruisers Boosts Outlook
- Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Itinerary Flexibility Key to Attracting New Cruisers
- Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Cruise Stocks Outperform Broader Market This Year
- Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Cruise Lines Investing in Enhanced Onboard Offerings
- Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Focus on Health Safety Protocols to Reassure Cruisers
- Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Cruise Capacity Expected to Reach Pre-Pandemic Levels in 2023
Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Cruise Lines Optimistic Despite Economic Uncertainty
While the surge in cruise bookings is certainly a positive sign, some uncertainty remains around the broader economic climate. High inflation, rising interest rates and talk of a potential recession have many consumers adopting a more cautious spending outlook.
However, cruise line executives remain largely optimistic that bookings momentum can weather the storm. Frank Del Rio, CEO of Norwegian Cruise Line Holdings, said on a recent earnings call that he believes the cruise industry is somewhat insulated from economic fluctuations.
“Historically, the cruise industry has performed well during recessionary periods,” Del Rio said. He reasons that cruises remain a highly affordable vacation option compared to land-based resorts and hotels. The all-inclusive nature of a cruise also provides cost certainty for vacationers worried about inflation.
Carnival Corporation CEO Arnold Donald echoed this sentiment. “We provide a great value proposition,” he stressed. Donald pointed out that Carnival offers cruises from three days to over two weeks, allowing consumers to choose the length and experience level that fits their budget.
While cruise prices are rising with pent-up demand, they remain far below peak pre-pandemic levels. According to UBS research, average 2022 prices are down about 5% versus 2019. Cruise lines have flexibility with onboard spending levers and bundled packages to maintain an attractive value perception.
Travel advisors say one key trend they’re noticing is cruisers opting for shorter voyages closer to home ports. This allows vacationers to still get their cruise fix while minimizing travel expenses. Princess Cruises, for example, has seen strong demand for short Western Caribbean itineraries out of Florida.
To instill confidence, cruise lines are now offering greater booking flexibility. Options like relaxed cancellation policies, future cruise credits and payment plans aim to reassure nervous travelers. According to an American Express Travel survey, 67% of cruisers say more flexible booking policies make them feel better about cruising.
Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Strong Loyalty Among Cruisers Boosts Outlook
The cruise industry has cultivated an exceptionally loyal customer base over the years, which is now paying dividends as bookings rebound. According to CLIA's 2021 Cruise Travel Report, 92% of cruisers say they will probably or definitely book another cruise, the highest level ever recorded.
This strong loyalty has provided a solid base of repeat bookers as cruising resumes. Vicki Freed, senior vice president of sales and trade support at Royal Caribbean International, said past guests have driven most new reservations. "The number one indicator of whether someone will go on a cruise again is whether they've cruised before," Freed remarked.
Indeed, pent-up demand from past cruisers has led the booking resurgence. A Cruise Critic member poll revealed 87% of cruisers planned to book a future sailing in 2022, with loyal Princess Cruises and Royal Caribbean guests leading the pack. Cruise lines are tapping into this ready-made market by incentivizing repeat customers. Offers like onboard credits, reduced deposits and complimentary upgrades all target avid cruisers.
Travel advisors say the decision to relax vaccination policies has been a game-changer with loyal cruise travelers. Eliminating vaccine mandates has brought many hesitant past guests back to the booking table. "Since protocols have eased, our phones have been ringing off the hook with previous clients now ready to book," said Mary Jean Tully, founder of Cruises by Mary Jean.
Still, cruise lines tread carefully not to isolate their loyal core base. While eager to attract new cruisers, they aim to avoid alienating the repeat customers who will sustain long-term growth. Policies like reduced capacities and staggered embarkation times keep loyalists happy by preventing overcrowding. Upgraded sanitation measures also reassure the largely older cruise demographic.
Targeting diverse demographics is also key to loyalty. Carnival Corp recently launched Carnival Celebration, aimed at younger cruisers with more high-thrills activities. MSC Cruises will bring Cirque du Soleil shows to its new luxury World Class ship targeting families. This strategic segmentation caters to loyal subsets while expanding the potential market.
Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Itinerary Flexibility Key to Attracting New Cruisers
While loyal cruisers have driven the initial booking rebound, attracting first-time passengers will be vital to sustaining long-term growth. Here, cruise lines believe offering greater itinerary flexibility is the key to tapping into new markets.
“We’re seeing a real desire among new-to-cruise travelers for more control over their itineraries,” says Chris Gray Faust, Managing Editor at Cruise Critic. The ability to customize shore excursions, build personalized port days and modify plans on the fly all help attract rookie cruisers.
To cater to this demand, lines like Viking Ocean Cruises now offer shore excursion choice packages. Travelers can reserve a set number of tours to plan around, swapping in new options during the voyage. Princess Cruises has expanded its Cruise, Tour, Stay offerings which combine land-based hotel stays with a partial cruise.
Other lines boast about the number of unique destinations they visit to inspire new cruisers. “I tell first-timers that the average 7-day sailing visits five distinctly different ports – that’s a lot more variety than a traditional resort,” says Tanner Callais, founder of Cruzely.com. Callais finds emphasizing port diversity and experiential variety helps newcomers visualize an itinerary's breadth.
Customizable dining has also proven key to attracting cruise rookies. “Being able to dine when and where they want is really important to new guests,” notes Megan King, Deputy Editor at TripSavvy. To meet this demand,Royal Caribbean International’s new Wonder of the Seas offers 20+ dining options from food trucks to upscale restaurants.
While veterans may enjoy sea days, new cruisers often prefer port-intensive itineraries. “First-timers usually want to pack in as much sightseeing as possible,” says Matt Jacob, a luxury travel advisor with Expedia CruiseShipCenters. Lines like Celebrity Cruises now offer more overnight visits to satisfy new cruisers’ thirst for extended exploration.
Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Cruise Stocks Outperform Broader Market This Year
Industry leader Carnival Corporation has seen its stock price climb nearly 8% since the start of January. Royal Caribbean shares are up a solid 11% over the same period. Norwegian Cruise Line has charted the most impressive course, with its stock skyrocketing 31% year-to-date.
Several factors have contributed to the outsized returns for these cruise giants in an otherwise turbulent market environment. Most significantly, the surge in advance bookings throughout the industry has restored confidence among investors.
Cruise companies are witnessing extraordinary pent-up demand among vacationers who missed out on sailing during two years of pandemic restrictions. This momentum is expected to drive strong revenue growth as ships across the world return to service at accelerated pace.
Relaxed COVID-19 protocols have also buoyed cruise stocks, as vaccine requirements are dropped to attract more guests. Investors cheered Norwegian’s announcement in August that vaccinations would be optional across its fleet. The move aligned Norwegian with key rivals and helped allay concerns around dampened demand.
Importantly, cruise operators have taken advantage of discounted share prices over the past two years to scoop up their own stock. Buying back undervalued shares reduces outstanding share counts and boosts earnings per share. Carnival alone has repurchased more than $1 billion worth of stock during the downturn.
Several analysts have upgraded their outlooks for cruise stocks given the ongoing recovery tailwinds. In April, Deutsche Bank upgraded shares of Royal Caribbean to a Buy rating, praising its “leading net yield growth” that will expand profit margins. The firm also boosted Norwegian to a Buy in September, forecasting higher onboard revenue and advance bookings growth.
Despite outperforming this year, cruise stocks remain well below their pre-pandemic highs. Carnival is still down over 50% from 2020 levels, providing substantial upside potential. As onboaring revenues rebound and ships operate at full capacities again, analysts see smoother sailing ahead for cruise stocks.
Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Cruise Lines Investing in Enhanced Onboard Offerings
Cruise lines are investing heavily in enhanced onboard offerings to elevate the guest experience and attract new cruisers. With competition stiff as cruise travel rebounds, companies aim to stand out with innovative dining, entertainment and activity options.
Royal Caribbean recently unveiled a $165 million modernization of Allure of the Seas, one of its Oasis Class ships. The extensive refurbishment added a revamped pool deck, luxury Solarium suites, and new dining venues like Portside BBQ and Playmakers Sports Bar & Arcade. Onboard thrill attractions were also upgraded, including a new Ultimate Abyss slide touted as the tallest at sea.
“We’re raising the bar to give vacationers even more ways to make family memories,” said Mark Tamis, senior vice president of hotel operations. Such major investments exemplify how Royal Caribbean strives to enhance the guest experience with state-of-the-art amenities.
Princess Cruises is similarly elevating its dining lineup across existing vessels. The cruise line recently added several new specialty restaurants to ships like Crown Princess and Emerald Princess. Offerings include Japanese hibachi at Kai Sushi, French bistro fare at La Mer, and premium steaks at Crown Grill. The new dining options aim to satisfy discerning palates with global flavors.
“Our culinary program enhancements allow us to meet changing tastes while still providing the exceptional service Princess is known for,” noted Sandra Borges, vice president of guest experience and product development.
Norwegian Cruise Line also continues expanding its roster of specialty restaurants. New venues coming soon include Onda by Scarpetta, serving up Italian coastal cuisine, and Palomar from Michelin-starred Spanish chefs, the Roca brothers. With diverse menus crafted by acclaimed chefs, Norwegian is upping the ante on culinary experiences at sea.
Of course, dining is only part of the equation. Activity offerings are equally important, and cruise lines are investing substantially here as well. Carnival Cruise Line recently completed a $200 million transformation of Carnival Radiance with expanded attractions like an Ultimate Playground kids zone and the cruise industry’s first roller coaster, BOLT.
Such onboard enhancements provide tangible value for cruisers. Guests receive a more memorable, shareable experience that justifies the vacation expense. As Tamis of Royal Caribbean noted, “When our guests have these incredible experiences, they will come back again and again.”
This willingness to invest big in onboard products displays the cruise industry’s resiliency and optimism for the future. Companies clearly see strong growth potential, especially among new cruisers less familiar with cruising’s breadth of offerings. The goal is to showcase an unmatched variety of dining, activities and entertainment that travelers can’t find anywhere else.
Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Focus on Health Safety Protocols to Reassure Cruisers
Cruise lines are keenly aware that demonstrating a rigorous focus on health and safety protocols will be paramount to attracting guests in the wake of COVID-19. Companies are investing substantial resources to implement enhanced sanitation measures and modify policies to align with current public health guidance. The goal is to reassure both loyal and prospective cruisers that their wellbeing remains the top priority.
According to cruise expert Tanner Callais, founder of Cruzely.com, “health and safety has become the number one consideration for cruisers in the new normal.” He says most travelers he speaks with want to see tangible efforts by cruise lines in areas like screening, sanitation and medical care beforefeeling comfortable booking.
Many lines have risen to the occasion by deploying advanced air filtration systems proven to capture airborne pathogens. Celebrity Cruises uses HEPA filters throughout its ships, similar to those found in hospitals. Princess Cruises also installed medical-grade HEPA filters as part of its $28 million investment in enhanced ventilation.
Testing and screening protocols provide another layer of protection to identify potential cases before boarding. MSC Cruises requires a COVID-19 antigen test for all unvaccinated guests prior to embarkation. Royal Caribbean mandates a negative PCR or antigen test for all passengers over age 2 before cruising.
Of course, vigilant sanitation also offers visual reassurance to cruisers. Companies like Carnival are using electrostatic sprayers to sanitize all surfaces with disinfectants rated to kill coronaviruses. Norwegian Cruise Line has increased the frequency of cleaning public areas to occur multiple times per day.
Changes to onboard medical resources demonstrate a cruise line’s readiness to manage COVID-19. Royal Caribbean added more nurses and doctors across its fleet to enhance capacity for testing, treatment and contact tracing if needed. It also equipped ships with PCR testing facilities for rapid diagnosis.
Transparent communications addresses another key concern of cruisers. Companies should clearly explain enhanced protocols on their websites and literature. Links to the latest COVID-19 policies, including quarantine guidelines, testing requirements and mask rules, should be prominently displayed during booking.
Of course, no amount of protocols can eliminate all risks. Cruisers must weigh their personal risk tolerance and make informed decisions. But those who follow common sense measures like getting vaccinated, wearing masks indoors, and practicing good hand hygiene can reasonably partake in cruising once again.
Smooth Sailing Ahead: Wall Street Still Bullish on Cruise Stocks as Bookings Surge - - Cruise Capacity Expected to Reach Pre-Pandemic Levels in 2023
After facing heavy losses, cruise lines are ramping capacity back up to meet surging demand. Industry experts predict passenger volumes could approach 95-100% of pre-pandemic levels by the end of 2023. This marks a monumental recovery for a sector battered by two years of government restrictions.
According to Patrick Scholes, a leisure analyst at Truist Securities, "Almost every single [cruise line] is talking about getting back to historical capacity levels next year." Royal Caribbean confirmed it expects occupancy to normalize in 2023 based on booking trends. Norwegian Cruise Line Holdings projects all its ships will be active again by year's end.
Yet the capacity recovery remains gradual through 2022. Ships idled for months require extensive maintenance work before reentering service. Crew staffing also takes time to coordinate for full fleets. Supply chain issues pose challenges securing spare parts needed for recommissioning.
Nonetheless, major lines plan to reintroduce more than 30 additional ships throughout 2022. MSC Cruises brought MSC Seascape into service in November. Royal Caribbean will launch its next Oasis Class megaship in October. Carnival's new LNG-powered Carnival Celebration also debuts this fall.
Past cruisers eagerly await these shiny new vessels, but reduced capacity has created some headaches. Travel advisor Vicki Freed says demand exceeds supply for popular itineraries, forcing savvy clients to book further out. "People who are used to getting a last minute bargain are learning that's not always possible now."
Supply-demand imbalances also pressure pricing. According to UBS research, fares in the second half of 2022 are up 17% over record 2019 levels. Limited inventory enables cruise lines to charge higher premiums. Yet executives stress pricing remains below land-based vacation alternatives.
Nonetheless, cruisers yearn for a return to normalcy. Eliminating vaccine requirements has helped, but occupancy caps keep ships under-booked. Enthusiasts accustomed to fully booked sailings miss the lively atmosphere and excitement only a full ship can offer.