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Cruise Lines See Improved Demand, Higher Ticket Prices
Cruise lines are beginning to set sail after voyages were stalled for over a year and a half amid the COVID-19 pandemic. Demand for leisure travel is significantly higher this year, driving up ticket prices, but cruise operators have yet to return to profitability.
Even as the industry resumes operations in some capacity, cruise lines are still posting significant losses. According to TradeWinds, Norwegian Cruise Line Holdings recently reported Q2 earnings and posted a $718 million loss, slightly worse than a $715 million loss in Q2 2020. This was the sixth-straight quarter Norwegian ended up in the red ink, as it launched its first voyage last week since the industry-wide shutdown began.
Royal Caribbean announced similar results, reporting a net loss of $1.35 billion in Q2, slightly better than the $1.64 billion loss the company posted last year, per CNBC. Royal Caribbean’s revenue was much lower than expected, coming in at $50.9 million in the second quarter, close to only a third of what analysts had forecast.
Royal Caribbean did note, however, that ticket prices are higher than this time two years prior, and that travelers are spending more on their voyages than usual. Forbes reported that Norwegian is implementing similar price hikes, as the company announced its ticket prices are trending well above 2019 levels.
Higher ticket prices are an industry-wide bright spot that appear to have staying power. As CEO of World Travel Holdings Brad Tolkin states current prices are significantly better than 2019, pre Travel Weekly.
MRP has recently highlighted the cruise industry’s outlook, noting that lingering consumer uncertainties could postpone a full recovery further than cruise lines originally anticipated. A preliminary reading of US consumer sentiment for August slumped to 70.2, the lowest reading since December 2011.
Concerns among cruise lines and potential travelers may have been raised even higher last week after 26 vaccinated passengers, as well as a crew member, tested positive for COVID-19 aboard a Carnival cruise vessel out of Texas, bound for Belize. Overall, passengers on board were 96.5% vaccinated, exceeding the CDC requirement of 95%.
While CNN reports most of the infected passengers were asymptomatic, the spread of COVID’s delta variant, as well as other variants, is likely to delay a recovery for cruise operators. New research, cited by Reuters, has shown that fully vaccinated people with “breakthrough” infections may be just as capable as unvaccinated people to spread the virus to others since the viral loads were similar among vaccinated and unvaccinated patients. It is worth noting, however, that the viral loads decreased faster in the vaccinated group.
Cruises Set Sights on Full Recovery in 2022
At this point, profitability for the cruise industry looks unlikely until at least next year.
One issue the industry was facing, however, appeared to be resolved last week. After a lengthy legal battle with the state of Florida, Norwegian Cruise Lines won a case that says the company can require proof of vaccination in order to board their cruise ships, something Florida’s state government previously deemed unconstitutional.
The unpredictability of COVID-19 outbreaks, as variants of the virus multiply and spread, is likely to create volatile stretches for the cruise industry. However, cruise lines are looking past any short-term setbacks and forecasting a complete recovery in early 2022.
Viking Cruises chairman and founder Torstein Hagen recently told CNBC that the company was ‘delighted’ with the recent court ruling that allowed cruise operators to mandate proof of vaccination. He also shared that Viking’s cruise bookings for 2022 are up 42% compared to 2019 levels, a significant indicator that demand for leisure travel should strongly recover next year.
Similarly, Norwegian Cruise Lines announced it plans to have all 28 of its ships operating at full capacity before April 2022, per Reuters. Norwegian also said its cumulative booked position was above record levels and at higher prices.
For now, Royal Caribbean sees the delta variant surge as a small bump in the road on the path to a greater recovery. According to CNBC, the company saw its bookings climb 50% in the second quarter compared to the previous quarter. Royal is aiming to have 80% of its fleet back in service by the end of 2021, and have its full fleet sailing again by spring 2022.
It appears the cruise industry will remain in choppy waters through the rest of 2021 as the delta variant keeps ships at bay and consumers at home. However, spring 2022 is widely considered to be a key turning point for cruise operators.
If the most recent surge in COVID-19 cases is truly a short term setback, cruise operators are poised for record setting revenues in 2022 with ticket prices much higher than pre-pandemic levels and pent-up demand for leisure travel set to be unleashed.
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