“I've been waiting forever to see this ice show,” Jim, a cruise fan from Wisconsin, wrote on X this month, excitedly posting a video of the world's largest ice skating rink at sea.
The arena, which he described as a “dramatic upgrade from all previous ships,” was one of the attractions that drew attention when Royal Caribbean's Icon of the Seas set off on its sold-out maiden voyage in January.
The debut of the world's largest cruise ship, which can accommodate 7,600 people, caps a remarkable recovery for the global cruise industry, which has transformed itself from one of the pandemic's most high-profile victims into one of tourism's fastest-growing sectors in four years.
Bookings are booming, driven by new and younger customers attracted to cruises as a cheaper option to land-based resorts, as well as long-time fans looking for a “revenge trip.”
Viking Holdings, which listed earlier this month, was the second-largest U.S. initial public offering this year, boosted by growing investor interest. The Bermuda-based group, which offers 87-day trips from the North Pole to the Antarctic for prices starting at 61,895 pounds, is now valued at $12.7 billion.
The company's initial public offering (IPO) raised $1.54 billion, delivering much-needed gains for U.S. private equity group TPG and Canada's largest pension fund CPP Investments as customers continue to book travel.
“35% has already been sold.[for 2025]”…customers make reservations well in advance,” says Viking founder and CEO Torstein Hagen.
According to the Cruise Lines International Association, an industry group, 34.7 million passengers are expected to take cruises worldwide this year, 17% more than in 2019. The cruise industry surpassed pre-pandemic levels by 7% last year, but that contrasts with overall international tourist arrivals, which include air passengers, remaining down 12% between 2019 and 2023.
You're seeing a snapshot of an interactive graphic. This may be because you're offline or have JavaScript disabled in your browser.
The level of advance bookings has allowed Viking to expand: In December, the company ordered 10 river cruise ships to be delivered through 2026, to ply popular routes such as the Rhine, Danube and Seine.
Viking's competitors are also in expansion mode: Norwegian Cruise Line announced its largest-ever order for eight cruise ships in April, to be delivered between 2026 and 2036. Carnival Cruise Line announced its first new ship order in five years earlier this year.
“There are several shipping lines with significant numbers of ships in the pipeline, which is driven not only by the overall industry recovery but also confidence in future growth,” said Alistair Pritchard, lead partner for Deloitte's travel and aviation practice.
Royal Caribbean's shares have soared more than 80% in the past 12 months, while Carnival's shares have risen more than 35%.
The question now is whether the industry can maintain this momentum, and whether demand will be just as high by the time these new ships arrive.
Demand has been so high since the U.S. Centers for Disease Control and Prevention stopped classifying ships based on vaccination rates in July 2022, leading some analysts to suspect the industry is in a demand bubble.
Ordering ships that take years to arrive carries the risk that demand will subside by the time they arrive. © Darryl Dyck/The Canadian Press via AP
“People's concerns are [if we are] In the midst of a demand bubble… and [if] “Cruise lines, which have benefited from an influx of American travelers amid international travel restrictions, are creating a revenge travel bubble similar to that seen with U.S. resorts,” said Patrick Scholes, a travel industry analyst at Truist Securities.
“I think we're in a period of accelerating demand and it's going to be hard to sustain the significant growth rates that we've seen in the past,” he added.
Ship orders take years to arrive, meaning there's a risk that demand will have waned by the time they arrive.
“Once you book a ship, your overhead stays the same and you can't pay your crew unless the ship is full,” said Bob Levinstein, CEO of cruise marketplace CruiseCompete.com. Unsold cruise ship rooms mean fewer passengers spending money on restaurants, sightseeing and casinos — big revenue sources. “The No. 1 rule is always fill the ship, fill the ship, fill the ship,” he added.
Despite refinancing when interest rates were lower, many cruise lines are increasing their debt as a result of the pandemic shutdowns. Norwegian Cruise Line will have $13 billion in debt at the end of 2023, double what it had at the end of 2019, while Carnival's net debt balance has soared from $10 billion to $30 billion.
Meanwhile, cruise prices remain sluggish compared with soaring hotel and airfare costs.
Cruise vacations are now 27% cheaper than all-inclusive land-based resorts, though the gap has narrowed from 50% at the height of the pandemic, according to Goldman Sachs analyst Lizzy Dove.
“Despite the oligopoly, cruise pricing has not kept pace with inflation and the overall lodging industry,” Dove said.
You're seeing a snapshot of an interactive graphic. This may be because you're offline or have JavaScript disabled in your browser.
For decades, cruise lines have offered last-minute discounts to fill rooms, deterring repeat cruisers from boarding in hopes of getting a better price.
The industry's lower operating costs compared with hotels and resorts make it affordable: Most staff come from cheaper countries such as the Philippines, and cruise companies typically pay little or no corporate tax, analysts say.
According to Dove's analysis, passenger ticket revenue per occupied berth per day last year was 7% higher than in 2019, below the average daily rate increase of 18% across all U.S. lodgings.
Capacity is also a factor: The arrival of mega-ships like the Icon of the Seas has “caused prices to come down a little bit over the last six months or so where capacity is concerned,” Deloitte's Pritchard said.
The flip side for cruise operators is that demand remains stable for the time being, with few signs of a squeeze even as inflation puts pressure on customers' personal finances.
According to the Royal Caribbean website, the starting price for a seven-night cruise to the Western Caribbean in February on the Icon of the Seas (the next available date at that price) is $1,511.
“Cruising remains an exceptional value proposition,” Chief Executive Officer Jason Liberty said on an earnings call last month, but acknowledged he wanted to raise prices. “Customer sentiment remains very positive,” he added. “As we look at the remainder of 2024, it looks like it's going to be an exceptional year.”
Cruise lines and analysts say competitive pricing compared to other resorts is attracting younger passengers new to cruising. © Paola Chiomante/Reuters
The company raised its full-year profit forecast for the second time after its first-quarter net income rose to $360 million from a net loss of $48 million a year earlier.
Norwegian Cruise Line also raised its full-year outlook after seeing record bookings in the first three months of the year, with Chief Executive Harry Sommer saying consumer sentiment was “healthy and resilient.”
Cruise lines and analysts argue that the cruise industry's competitive prices compared with other resorts are attracting younger, “first-time cruise” passengers.
Royal Caribbean added that nearly half of its guests are millennials or younger, and the number of first-time cruisers is up 16% from last year, fuelled by family-friendly attractions on board its ships and on private islands in the Caribbean and Bahamas.
With luxury cruise lines expanding and the ultra-luxury cruise market expecting cruising to remain popular for years to come, prospective passengers have more options than ever before.
“We are completely different [from] “We're targeting big corporations,” said Viking's Hagen, who said the company targets customers over 55 and bans passengers under 18. “Our ships are smaller, and I think more and more adults are wanting that.”
Additional reporting by Alexandra White
