Cruise operators have been experiencing a surge in demand post-Covid pandemic, leading to questions about the sustainability of this trend. However, UBS analyst Robin Farley believes that the good times will continue for cruise lines. One key factor supporting this optimism is the difference in pricing between cruises and land-based hotels, which is still wider than it was in 2019. Despite the growth in US hotel rates being driven by leisure demand, cruise prices have not caught up in terms of per diems.
Another contributing factor to the success of cruise lines is the shift in consumer preferences towards accumulating experiences rather than material possessions. This trend has led to an increase in demand for cruises, attracting both new and repeat customers. Retiring baby boomers and millennials are also driving growth in the industry as they look to spend more time traveling.
Melius Research and Morgan Stanley are also bullish on the future of the cruise industry, predicting continued margin expansion and strong demand for cruises. Royal Caribbean is highlighted as a top pick by UBS, with strong performance during its Wave season and record booking rates for 2024. Carnival is also expected to benefit from the opening of Celebration Cay, a private island set to open in summer 2025.
Overall, the cruise industry is poised for growth and offers investment opportunities for those looking to capitalize on the sector’s potential. Despite challenges, such as balance sheet and execution issues for some operators, the overall outlook is positive for the industry. With factors like demographic shifts, changing consumer preferences, and strong demand driving growth, cruise operators are well-positioned for success in the coming years.
