Even if you have sworn to yourself never to sail again after Covid-19, there may be a price that tempts you. Mainstream cruise lines need you.
Amid sky-high hotel prices, the best accommodation deals this summer are at sea level, literally. Cruise review site Cruise Critic noted that prices for summer cruises are currently as low as they have been since the industry restarted in 2021. The current average cost of a five-night Caribbean cruise starts at $100 per day, according to Cruise Critic, including accommodations, meals and entertainment. That’s about 10% less than the average daily rate for a midrange U.S. hotel last month, according to hotel data provider STR.
As Covid restrictions ease, cruise lines have scrapped ship occupancy limits and appear to be making discounts to fill summer trips. After two catastrophic years of losses and mounting debt, Royal Caribbean,
CCL Carnival -5.80%
and Norwegian Cruise Line Holdings NCLH -4.36%
expect a return to profitability based on adjusted earnings before interest, taxes, depreciation and amortization at some point this year. These objectives could certainly benefit from the increase in the number of passengers in the face of rising costs.
Labor and fuel costs, which most cruise lines don’t hedge against, are skyrocketing and account for a significant portion of overall cruise line expenses. UBS analyst Robin Farley estimates that Carnival’s labor and fuel typically account for about 29% and 20%, respectively, of ship operating costs, excluding sales and general and administrative expenses.
Wall Street predicts a significant increase in occupancy rates at all major cruise lines this year. Royal Caribbean is expected to increase occupancy from less than 60% on March 31 to nearly 100% by the end of December. Truist analyst Patrick Scholes said in a note last month that it would likely take “significant additional discounts” and promotions to bring the industry closer to analysts’ year-end occupancy targets.
Cruise Critic notes that prices for next year’s cruises have remained more stable, but discounted prices may persist. Mr Scholes has long warned that it has always taken years for prices to recover in the industry once they are widely discounted.
Cruise lines don’t even apply fuel surcharges, despite rising fuel prices. Passengers, it seems, are a shrewd bunch and hungry for bargains. With the price of some cruises having dropped by 20-30% since the time of initial booking, cruise lines often eat non-refundable deposits to rebook at lower prices, Scholes wrote last month. This could mean that bookings made at higher prices for future cruises could end up being booked at lower fares.
On the plus side, lower ticket prices often allow cruise passengers to spend more money on board. Wall Street is very optimistic: while the occupancy rate is expected to increase by 38 percentage points from March to December across the entire Royal Caribbean fleet, for example, analysts predict that onboard spending will more than double. during this period.
One of the risks here is the percentage of cruise passenger activity that comes from regular cruisers. Ms. Farley of UBS estimates that 30-60% of Carnival customers, for example, repeat cruises on the same brand within three years. While this certainly shows strong brand loyalty, it’s unclear whether passengers who splurge on their first post-Covid cruise will want to spend as much on subsequent voyages.
Cruise stocks have fallen by more than 50% on average over the past year and are now trading at levels seen in 2020 when the industry was shut down. Prices for luxury cruises, at least, appear to be holding up, which is positive for Norwegian, which has nonetheless seen its stock plummet almost as much as Carnival’s over the past year. According to Truist’s Scholes, less than 5% of Carnival’s business is in luxury, compared to about a third of Norwegian’s.
In a beaten group, that could make Norwegian’s stock the best deal right now, even if its trips aren’t cheap.
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