‘Full Steam Ahead’ at U.S. Cruise Lines as Bookings Outpace 2014

Royal Caribbean Cruises

If you’re not convinced Americans are feeling more confident, try planning a cruise vacation.

Bookings at the three largest U.S. cruise operators are coming in faster so far this year than a year ago. This offers a tangible example of what sentiment gauges measure: Some American consumers are ready and able to spend on discretionary purchases again.

About 23 million people will take an ocean-based trip this year aboard ships operated by members of the Cruise Lines International Association. That’s up 4.4 percent from 2014, when 51 percent of passengers were Americans, according to the Washington-based trade group.

This industry provides “a very strong, leading economic indicator” because passengers book trips as many as 18 months in advance, said Frank Del Rio, chief executive officer of Norwegian Cruise Line Holdings Ltd. As a result, “there must be a level of confidence” among consumers about their financial situation, as well as the broader U.S. outlook, to make such plans.

Bookings for the third-largest U.S. cruise line are “tracking ahead” of last year, with reservations for 2016 better than they’ve ever been at this point for the following year, Del Rio said. A more robust economy, marked by declines in unemployment, interest rates and oil prices, have contributed to this strength, he added.

Rising Revenue

That’s encouraging for the Miami-based company after revenue rose almost 22 percent to $3.1 billion in 2014, as Norwegian introduced a new ship and acquired Prestige Cruises International Inc.

“We’re moving full steam ahead,” Del Rio said.

Carnival Corp. also saw stronger demand than last year during January-March -- the so-called wave season that’s historically busiest for sales. This suggests “U.S. consumers are feeling good about traveling,” and particularly cruising, said Roger Frizzell, a spokesman for the Miami-based company.

The world’s largest cruise-line operator is “ahead on bookings,” including those at higher prices, as “there certainly appears to be momentum in the marketplace and a growing confidence by consumers,” Frizzell said. Another encouraging sign: Onboard passenger spending rose 4.6 percent from a year ago in the three months ended Feb. 28.

Sentiment measured by the Bloomberg Consumer Comfort Index rose to an almost eight-year high in the week ended April 5.

‘Highly Optimistic’

The industry is “highly optimistic,” largely because vacationers are “placing a greater priority on cruising,” said Lorri Christou, a spokeswoman for the trade group. The number of passengers grew 77 percent between 2003 and 2013, outpacing the 57 percent increase for land-based trips, she said, citing data from Business Research & Economic Advisors, a market analysis company in Exton, Pennyslvania.

U.S. demand was particularly strong last year for European trips operated by Royal Caribbean Cruises Ltd. This reflects “growing affluence” among Americans who want to travel further and are “willing to pay a higher price,” Michael Bayley, president of the Miami-based company’s international division, said on a Jan. 29 conference call. Similar to its competitors, the company was “in the best booked position” it’s ever been in as of January, he said.

Royal Caribbean declined to comment for this story, citing a quiet period before releasing first-quarter results April 20.

Beating the Benchmark

Investors have taken note. Shares of Norwegian have outpaced the Standard & Poor’s 500 Index by almost 65 percentage points in the last 12 months, while Royal Caribbean has outperformed the benchmark index by 42 percentage points and Carnival has led by about 15 percentage points.

Traders -- and vacationers alike -- could be less cheery about cruising if the industry stalls. The three largest U.S. operators have had spotty financial performance, reporting sales in recent quarters that missed analysts’ estimates.

Cruise companies also have been plagued in recent years by accidents and outbreaks of illnesses. The U.S. Centers for Disease Control and Prevention said April 13 that passengers aboard two Royal Caribbean ships were sick with gastrointestinal ailments including vomiting and diarrhea. That follows other at-sea incidents, notably when a Carnival ship capsized off the Italian coast in January 2012.

Even so, many consumers remain undeterred. A recent survey showed that 86 percent of cruisers plan to take a similar vacation in the next three years, said Christou of the trade group. Carnival research indicates that passengers probably will return “several times again,” Frizzell said.

Consumer Confidence

As consumer confidence continues to be buoyed by the stronger job market, Americans probably will be more willing to spend. Employers added 3.1 million workers to payrolls last year, the most since 1999.

The cruise operators are responding with new ships, itineraries and amenities, as well as broadening the price points to appeal to more potential customers.

“As long as the industry continues to offer a product that is highly valued among current and future passengers, we anticipate continued growth,” Christou said.

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