Royal Caribbean is leading the $61 billion cruise industry’s comeback. This comes just a couple of years after a 15-month pandemic era shutdown led to questions about whether the industry could ever recover. But the three public companies - Carnival, Royal Caribbean and Norwegian - are starting off 2024 with record breaking booking positions and pricing levels. Drawing younger audiences, smart cash management and strong pre-cruise spending have all been contributing factors.

Chapters:
0:00 Introduction
1:15 The dark days
2:25 State of the industry
6:05 Making a comeback
8:15 Looking ahead

Produced and Edited by: Ryan Baker
Senior Managing Producer: Tala Hadavi
Animation: Christina Locopo
Camera by: Timothy Fadek
Additional Footage: Royal Caribbean Group, Carnival, Getty Images

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How Royal Caribbean And Carnival Made A Comeback

We were able to say we entered 2024, the highest we've ever been booked.

There are millions and millions of customers coming in to the cruise industry and then onto our ships that have never cruised before.

About 36 million passengers are expected to embark on a ship in 2024.

Cruising offers an unbelievable combination of 2 things, and that is being easy to book, easy to execute, and often the price being quite low.

But the industry is coming off its toughest test yet.

The coronavirus that sickened passengers on a cruise ship a week ago remains in quarantine.

2 years into the pandemic, the cruise lines had accumulated about $74 billion in debt.

Bleeding cash flows and tanking share prices led to questions about whether the industry could recover.

We started hearing people talking about cruising is dead, but of course, cruising is not dead.

So how did cruise lines make this astounding comeback, And what does it mean for the future?

Although historically plagued by viral outbreaks, nothing could have prepared the cruise industry for February of 2020.

The anthem of the seas was supposed to be at sea tonight.

We were seeing something completely different.

We were seeing ships being turned away from ports, people not being able to disembark.

Stocks of the big 3 public cruise companies plummeted in the first quarter of 2020 and the industry had to shut down for 15 months.

By September of 2022, the 3 public cruise lines had accumulated $74 billion of debt.

That balance comes with a big interest expense burden.

We were chugging along at about $200 million of interest expense before the pandemic.

And now, you know, it's hovering around 1.8 billion.

There is no experience that teaches you on what happens 1 day when you're not operating for a very long period of time.

So we really spent the time to focus on that, get our cost structure in place while at the same time making sure that we maintained our ships very well.

By 2022, the cruise lines were up and running as 20.4 million travelers decided to get back on the water.

When the shackles came off the industry, when the CDC stepped away from the industry, bookings went through the roof.

In 2019, Royal Caribbean's gross revenue was nearly $11 billion and Carnival's was nearly $21 billion.

Those numbers are expected to reach about 16 billion and 25 billion, respectively, in 2024.

We're coming off of a 2023 where I got to use record every single quarter.

Record revenue, record pricing levels that we were achieving and it accelerated over the course of 2023.

It's a business that generates a lot of revenue, a lot of margin, a lot of cash flow, And we were confident that once we got back into service, that we would accelerate into this and that the demand for ICON as well as our broader fleet and brands was going to be exceptionally strong.

The icon of the seas, the biggest ship in the world and latest addition to Royal Caribbean's fleet, sailed its maiden voyage out of Miami in January of 2024.

It started booking back in October of 2022, where it set the company's record for single-day bookings.

Out of the big 3 public cruise companies, Royal Caribbean maintained the highest overall 2023 ticket revenue increase compared to pre-pandemic levels and its profitability increase to

the best profitability measurement for this business.

So like literally how much profit they make on every cabin.

And if I look at 2024 and what we're modeling for 2024, Royal Caribbean has grown that that metric versus 19, whereas the other 2 have not.

Despite that, 2023 was Norwegian's first profitable year in terms of net income since 2019.

1 analyst called it the biggest growth story in the cruise sector in April of 2024.

We're seeing record book positions, record guests traveling, record prices, and it gives us great optimism for the future.

Once a ship sets sail, operating expenses don't change much, whether it's full or not.

That means, historically, the cruise lines have done whatever they can to fill their ships.

So when the cruise industry looks over at the airline industry and sees that the airline industry has trained all guests, right, and you and me to not wait until the last minute and to expect if you wait in the last minute, you're gonna pay the highest price.

That's what the cruise industry wants for itself.

And now that's finally happening, at least for Royal Caribbean and Carnival.

Simply put, these graphs show how as the ship's sale date approached in 2022, prices went up in 2023 at an even stronger rate.

Norwegian, the third largest cruise line, has not experienced the same shift.

Not high to low, where you have 90 days to basically sell distrust inventory.

The trade knows it and they'll take advantage of that.

But it's not only the ability to increase prices as the sale date nears that's important.

According to experts, Traveling on a cruise ship has traditionally been about 25 to 30 percent cheaper than land-based traveling.

That difference widened during the pandemic.

Today, it sits at about 40 to 50 percent.

We'll always be able to say we're evaluated, right?

We can always be lined up against land alternatives and be at a discount.

We just shouldn't be at this much of a discount.

Royal Caribbean's cash management during the pandemic is part of the reason why Its stock price has recovered faster than its competitors.

The number 1 reason why Royal Caribbean has outperformed its peers and recovered the fastest is because they issued the least amount of equity during the pandemic.

All of the companies had to issue equity.

All the companies had to issue debt, all the companies had to issue convertible debt.

And Royal Caribbean was able to manage its cash position in a way that that utilized the least amount of equity.

They had to issue about 400 million additional shares in 2020.

This was our survival at risk, and we made the tough decisions, but right decisions to be able to see ourselves through.

Catering to different segments and operating in different countries also posed a bigger challenge for Carnival, who owns 9 brands internationally, where El Caribbean, on the other hand, only fully owns 3, with most guests being from North America.

A majority of their capacity is the flagship brand.

I've heard industry insiders liken it to basically a startup of getting these ships up and running from from 0 revenue to being fully operational and full of customers.

And so and so I think it helps that it was 1 big brand.

The United States ran out the gates in the fall of 2022 and Europe didn't because the fact is our European brands that are based in Germany, Italy, the U.K., they were dealing with energy crisis.

Private destinations have also been a contributing factor in the industry's comeback.

Carnival is investing $500 million to build a private beachfront in the Bahamas.

Royal Caribbean's Coco Cay opened back in 2019 and accommodates 3000000 annual guests.

Today, as we accelerate out, we were really well positioned because of the strength of our brands, our ships, the private destination at Perfect Day at Cocoa K.

That really brought strong preference for our business, which helped us accelerate and use that additional cash flow to help right the balance sheet.

Closing the discount that cruising has on land-based travel is key to the industry's future.

1 way they are trying to do so is by driving pre-cruise spending.

All the companies have seen an increase in that area relative to 2019 levels.

What we're seeing is those consumers are basically spending about 20 or 30% more than they did with us pre-COVID.

They now know all the restaurants they can book on the ship.

They can now book their spa appointments in advance.

They can book all their shore excursions in advance.

They use machine learning and they use sophisticated data methodologies to maximize the amount people will spend.

While there are constantly new ships being built, it's happening at a slower rate.

We are not interested in an explosion of growth for the sake of the fact that there are open slots and shiploads.

The right approach is we need to reward our brands who simply cannot manage the demand profile because they are out of space for too long.

New builds have almost been a bit of a crutch for us, Carnival Corporation, because it does drive a lot of good things, but it also covers up, well, how are we doing on the underlying business?

But there are some concerns ahead for the industry.

It takes about a 10 to 15 second Google to see that cruise ships are not good for the environment.

Are there things that cruise ships are trying to do to take the edge of that?

But inherently, by the nature of it, it's not an environmentally friendly ways to travel.

The big 3 all plan to achieve net 0 emissions by 2050, although it's unclear how exactly that's going to happen.

You don't know how to get to net 0 again.

We do know if we use less, no matter what the answer is, we're gonna be ahead of the game.

Despite environmental impacts, the value of cruising over land travel continues to be its strongest appeal.

Drawing in new demographics is important to keeping the industry's momentum.

Currently, 36% of cruise travelers are millennials and Gen Z.

The economics of cruising is appealing to younger people now.

And you know, a lot of times younger people, they tend to be a bit more cash strapped.

So suddenly a style of traveling that they may have thought was more for their parents or their grandparents age is looking pretty good to them.

Capitalizing on the current momentum will be key to moving forward.

The industry plans to do so by closing the pricing discount to land travel.

It remains to be seen how customers will respond, especially given the industry's volatility around future viral outbreaks.

We feel really good about 2024 and we feel really good about the momentum that continues to build.


Speaker 0: The cruise industry is back.

Speaker 1: We were able to say we entered 2024, the highest we've ever been booked.

Speaker 2: There are millions and millions of customers coming in to the cruise industry and then onto our ships that have never cruised before.

Speaker 0: About 36 million passengers are expected to embark on a ship in 2024. That's about 20% more than 2019.

Speaker 3: Cruising offers an unbelievable combination of 2 things, and that is being easy to book, easy to execute, and often the price being quite low.

Speaker 0: But the industry is coming off its toughest test yet.

Speaker 3: The coronavirus that sickened passengers on a cruise ship a week ago remains in quarantine.

Speaker 0: 2 years into the pandemic, the cruise lines had accumulated about $74 billion in debt. Bleeding cash flows and tanking share prices led to questions about whether the industry could recover.

Speaker 3: We started hearing people talking about cruising is dead, but of course, cruising is not dead.

Speaker 0: So how did cruise lines make this astounding comeback, And what does it mean for the future? Although historically plagued by viral outbreaks, nothing could have prepared the cruise industry for February of 2020.

Speaker 3: Thousands of quarantine passengers. The anthem of the seas was supposed to be at sea tonight.

Speaker 0: We have a couple of hundred new cases.

Speaker 3: We were seeing something completely different. We were seeing ships being turned away from ports, people not being able to disembark.

Speaker 0: Stocks of the big 3 public cruise companies plummeted in the first quarter of 2020 and the industry had to shut down for 15 months. By September of 2022, the 3 public cruise lines had accumulated $74 billion of debt.

Speaker 1: That balance comes with a big interest expense burden. We were chugging along at about $200 million of interest expense before the pandemic. And now, you know, it's hovering around 1.8 billion.

Speaker 2: There is no textbook. There is no business school class. There is no experience that teaches you on what happens 1 day when you're not operating for a very long period of time. So we really spent the time to focus on that, get our cost structure in place while at the same time making sure that we maintained our ships very well.

Speaker 0: By 2022, the cruise lines were up and running as 20.4 million travelers decided to get back on the water.

Speaker 4: When the shackles came off the industry, when the CDC stepped away from the industry, bookings went through the roof.

Speaker 0: And so did share prices. In 2019, Royal Caribbean's gross revenue was nearly $11 billion and Carnival's was nearly $21 billion. Those numbers are expected to reach about 16 billion and 25 billion, respectively, in 2024.

Speaker 1: We're coming off of a 2023 where I got to use record every single quarter. Record revenue, record pricing levels that we were achieving and it accelerated over the course of 2023.

Speaker 0: And that momentum continued into 2024.

Speaker 2: It's a business that generates a lot of revenue, a lot of margin, a lot of cash flow, And we were confident that once we got back into service, that we would accelerate into this and that the demand for ICON as well as our broader fleet and brands was going to be exceptionally strong. And that has clearly proven out.

Speaker 0: The icon of the seas, the biggest ship in the world and latest addition to Royal Caribbean's fleet, sailed its maiden voyage out of Miami in January of 2024. It started booking back in October of 2022, where it set the company's record for single-day bookings. Out of the big 3 public cruise companies, Royal Caribbean maintained the highest overall 2023 ticket revenue increase compared to pre-pandemic levels and its profitability increase to

Speaker 4: the best profitability measurement for this business. It's probably EBITDA per capacity unit. Right. So like literally how much profit they make on every cabin. Right.

On average. And if I look at 2024 and what we're modeling for 2024, Royal Caribbean has grown that that metric versus 19, whereas the other 2 have not.

Speaker 0: Despite that, 2023 was Norwegian's first profitable year in terms of net income since 2019. 1 analyst called it the biggest growth story in the cruise sector in April of 2024. We're seeing record book positions, record guests traveling, record prices, and it gives us great optimism for the future. Once a ship sets sail, operating expenses don't change much, whether it's full or not. That means, historically, the cruise lines have done whatever they can to fill their ships.

Speaker 4: So when the cruise industry looks over at the airline industry and sees that the airline industry has trained all guests, right, and you and me to not wait until the last minute and to expect if you wait in the last minute, you're gonna pay the highest price. That's what the cruise industry wants for itself.

Speaker 0: And now that's finally happening, at least for Royal Caribbean and Carnival. Simply put, these graphs show how as the ship's sale date approached in 2022, prices went up in 2023 at an even stronger rate. Norwegian, the third largest cruise line, has not experienced the same shift.

Speaker 1: Low to high, that's the ideal, right? Not high to low, where you have 90 days to basically sell distrust inventory. That's a bad habit to get into. Consumers know it. The trade knows it and they'll take advantage of that.

Speaker 0: But it's not only the ability to increase prices as the sale date nears that's important. According to experts, Traveling on a cruise ship has traditionally been about 25 to 30 percent cheaper than land-based traveling. That difference widened during the pandemic. Today, it sits at about 40 to 50 percent.

Speaker 1: We'll always be able to say we're evaluated, right? We can always be lined up against land alternatives and be at a discount. We just shouldn't be at this much of a discount.

Speaker 0: Royal Caribbean's cash management during the pandemic is part of the reason why Its stock price has recovered faster than its competitors.

Speaker 4: The number 1 reason why Royal Caribbean has outperformed its peers and recovered the fastest is because they issued the least amount of equity during the pandemic. All of the companies had to issue equity. All the companies had to issue debt. All the companies had to issue debt, all the companies had to issue convertible debt. And Royal Caribbean was able to manage its cash position in a way that that utilized the least amount of equity.

Speaker 0: For Carnival, it was a different story. They had to issue about 400 million additional shares in 2020.

Speaker 1: This was our survival at risk, and we made the tough decisions, but right decisions to be able to see ourselves through.

Speaker 0: Catering to different segments and operating in different countries also posed a bigger challenge for Carnival, who owns 9 brands internationally, where El Caribbean, on the other hand, only fully owns 3, with most guests being from North America.

Speaker 4: A majority of their capacity is the flagship brand. I've heard industry insiders liken it to basically a startup of getting these ships up and running from from 0 revenue to being fully operational and full of customers. And so and so I think it helps that it was 1 big brand.

Speaker 1: The United States ran out the gates in the fall of 2022 and Europe didn't because the fact is our European brands that are based in Germany, Italy, the U.K., they were dealing with energy crisis.

Speaker 0: Private destinations have also been a contributing factor in the industry's comeback. Carnival is investing $500 million to build a private beachfront in the Bahamas. Royal Caribbean's Coco Cay opened back in 2019 and accommodates 3000000 annual guests.

Speaker 2: Today, as we accelerate out, we were really well positioned because of the strength of our brands, our ships, the private destination at Perfect Day at Cocoa K. That really brought strong preference for our business, which helped us accelerate and use that additional cash flow to help right the balance sheet.

Speaker 0: Closing the discount that cruising has on land-based travel is key to the industry's future. 1 way they are trying to do so is by driving pre-cruise spending. All the companies have seen an increase in that area relative to 2019 levels.

Speaker 2: What we're seeing is those consumers are basically spending about 20 or 30% more than they did with us pre-COVID. They now know all the restaurants they can book on the ship. They can now book their spa appointments in advance. They can book all their shore excursions in advance.

Speaker 4: They use machine learning and they use sophisticated data methodologies to maximize the amount people will spend.

Speaker 0: While there are constantly new ships being built, it's happening at a slower rate.

Speaker 1: We are not interested in an explosion of growth for the sake of the fact that there are open slots and shiploads. That's not the right approach. The right approach is we need to reward our brands who simply cannot manage the demand profile because they are out of space for too long. New builds have almost been a bit of a crutch for us, Carnival Corporation, because it does drive a lot of good things, but it also covers up, well, how are we doing on the underlying business?

Speaker 0: But there are some concerns ahead for the industry. The contribution to climate change is 1.

Speaker 3: It takes about a 10 to 15 second Google to see that cruise ships are not good for the environment. Are there things that cruise ships are trying to do to take the edge of that? Yes, of course. But inherently, by the nature of it, it's not an environmentally friendly ways to travel.

Speaker 0: The big 3 all plan to achieve net 0 emissions by 2050, although it's unclear how exactly that's going to happen.

Speaker 1: You don't know how to get to net 0 again. If anybody tells you, let me know. Because I'd love to mimic it. We don't know. We do know if we use less, no matter what the answer is, we're gonna be ahead of the game.

Speaker 0: Despite environmental impacts, the value of cruising over land travel continues to be its strongest appeal. Drawing in new demographics is important to keeping the industry's momentum. Currently, 36% of cruise travelers are millennials and Gen Z.

Speaker 3: The economics of cruising is appealing to younger people now. And you know, a lot of times younger people, they tend to be a bit more cash strapped. So suddenly a style of traveling that they may have thought was more for their parents or their grandparents age is looking pretty good to them.

Speaker 0: Capitalizing on the current momentum will be key to moving forward. The industry plans to do so by closing the pricing discount to land travel. It remains to be seen how customers will respond, especially given the industry's volatility around future viral outbreaks.

Speaker 2: We feel really good about 2024 and we feel really good about the momentum that continues to build.

Speaker 3: You

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How Royal Caribbean And Carnival Made A Comeback