Cruise Industry Sees ‘Encouraging Momentum’

The cruise industry has seen three “positive milestones” over the past month, indicating encouraging momentum for the sector according to a leading Wall Street analyst.

“From conversations with senior executives at very large travel agencies that specialize in cruises and from examining ‘big data’ on future bookings and pricing, we observed three positive ‘milestones’ for over the past month amongst overall encouraging trends,” wrote C. Patrick Scholes, managing director, lodging and leisure equity research for Truist Securities, in an email briefing.

Truist Securities is a capital market and investment banking firm. Scholes oversees research that covers the lodging and cruise industries.

Pricing Is Up
According to Scholes, the fourth quarter of 2022 will be the first for the industry in which pricing is “likely” to be up vs. 2019 levels. Currently, pricing is tracking up mid-single-digits compared to the same quarter in 2019.

“Looking forward into 2023, barring unforeseen circumstances, we expect pricing to continue to accelerate vs. 2019’s comparable levels.”

Additionally, Scholes said he expects the price slippage that occurs as sailing dates get closer to be “far less than the ‘crash & burn’” pricing that was observed for most of this year.

Booking Pace Is Accelerating
The booking pace for the current quarter and into the first quarter of 2023 is also up. Perhaps more importantly, bookings are up without a corresponding drop in pricing, the first time, he wrote, that that has been observed this year.

“While booking growth rates have moderated from August and early September’s post-vax & testing removal’s ‘explosion in bookings’ (+30% vs. 2019), booking pace has remained elevated into early November at up around low-double-digits vs. comparable 2019.”

At the same time, cancellations and rebookings, which had remained an issue through early August, remain “significantly” below 2019 levels. Cancellations are down approximately 30% over the past eight weeks vs. the comparable eight weeks in 2019.

Media Coverage of COVID Outbreaks Is Down
While there have been some sizeable COVID-19 outbreaks onboard ships over the past month – most notably on Majestic Princess in Australia this month – they have not attracted massive global media coverage, “also a first since COVID initially emerged.”

“Subsequently, from our latest checks and conversations we feel even more encouraged… about the direction the industry is heading as cruise lines are finally starting to participate in their fair-share of the travel recovery,” he wrote.

Luxury Shows Strongest Signs of Recovery
Scholes added that the luxury segment of the cruise industry continues to show the strongest signs of recovery, adding that the mass market segment continues to underperform.

“We continue to see the greatest degree of sales and pricing strength with the luxury lines as over the past 10 weeks we observed sales and pricing on bookings made for luxury sailings during that period for all future departures up approx. 30-35% and up approx. low-teens, respectively, vs. the comparable 10 weeks in 2019. By comparison, equivalent sales and pricing for the mass-market lines was up mid-teens and up low-single digits, respectively.

Cruise a Better Value than Land
Scholes also attributes “strong demand” in the cruise sector to the “comparative value proposition of a cruise vacation vs. a land-based one.”

Room rates continue to skyrocket and service levels “are arguably substandard for the rates one is paying.”

Despite pricing gains by the cruise industry, Caribbean cruise prices remain at record low levels, Scholes wrote, making cruises an appealing alternative to land vacations.

“Regarding the impact on demand for cruising if we hit a recession next year, we believe the comparative value proposition for cruising will better insulate the cruise lines versus land-based vacations,” he added.