“Cruise Lines Surge in Popularity as Affordable Hotel Alternative – CNBC”

**Cruise Industry Thrives Amid Travel Sector Slowdown**

The demand for cruises remains robust, and there are no signs of it slowing down anytime soon. After being one of the last sectors to recover from the Covid-19 pandemic, the cruise industry has bounced back with strong pricing and booking momentum. Although pricing growth is beginning to stabilize, it remains well above inflation levels, according to Patrick Scholes, a travel and leisure analyst at Truist.

“Cruise companies are having a moment right now,” Scholes said in an interview with CNBC.

Despite price hikes, cruises continue to offer a more affordable option compared to land-based lodging, which is helping the industry stand out as other areas of the travel sector show signs of weakness. For example, Hilton CEO Christopher Nassetta noted during a recent earnings call that U.S. leisure travel demand is “flat, maybe even a little bit down.”

Barclays analyst Brandt Montour highlighted that the cruise industry’s strength is driven by its significant price advantage over land-based vacations, coupled with higher service levels. As of the second quarter, the major cruise operators reported net revenue per passenger cruise day (net revenue per diems) 17% higher than in 2019. In contrast, Caribbean hotel room prices are up 54% and U.S. resort prices have risen by 24%, according to data from STR.

### Cruise Lines Capitalizing on Travel Market Shifts

Carnival CEO Josh Weinstein believes that any slowdown in other travel sectors could benefit the cruise industry. “If the consumer is slowing down in other sectors, that really bodes well for us,” Weinstein told CNBC after Carnival reported a strong third-quarter earnings beat on Sept. 30.

Royal Caribbean is set to release its quarterly results soon, followed by Norwegian Cruise Line Holdings. Both companies are expected to continue benefiting from the cruise industry’s ongoing momentum.

### The Price Gap Between Cruises and Hotels Widens

The price gap between cruises and hotels is not a new phenomenon, but it has widened in recent years, according to UBS leisure analyst Robin Farley. This gap provides cruise lines with more room for growth. One factor contributing to this is the increase in direct bookings, which reduces commissions paid to travel agents and boosts net revenue per diems.

Additionally, all three major cruise lines have increased their bundled and presold onboard revenue since 2019, further widening the gap between cruise and hotel price growth. Farley also pointed out that Royal Caribbean’s private island, CocoCay, adds another layer of revenue through its water park and other attractions, which passengers pay extra for.

### High-Speed Internet and Pricing Power

All three cruise lines are also rolling out high-speed internet access via Starlink, which could further enhance passenger revenue. According to Scholes, even a small increase in pricing can have a significant impact on profitability due to the industry’s high fixed costs. “Almost 90% flows through to the bottom line,” he said.

### Wall Street’s Bullish Outlook on Cruise Stocks

Wall Street analysts are optimistic about the prospects for cruise operators. Scholes noted that cruise companies are now competing with Orlando theme parks and Las Vegas vacations, offering more attractions and casting a wider net to attract travelers.

Royal Caribbean, in particular, has been a standout performer. Its private island, CocoCay, and the debut of the world’s largest cruise ship, Icon of the Seas, have generated significant interest. The company’s latest ship, Utopia of the Seas, is also designed to attract first-time cruise passengers with shorter, weekend getaways.

Royal Caribbean’s stock has already surged nearly 56% year to date, though analysts see limited upside from current levels. Carnival, on the other hand, has 12% upside potential, according to FactSet, and its new private island, Celebration Key, set to launch in July, could be a catalyst for further growth.

### Norwegian Cruise Line’s Strategic Shift

Norwegian Cruise Line Holdings has also garnered attention from analysts, with Citi recently upgrading the stock to a buy rating. Citi’s James Hardiman expects Norwegian to deliver a 23% compound annual growth rate for earnings per share over the next three years, with potential for even higher growth if the company maintains its pricing power.

While Norwegian has yet to announce a private island experience similar to Royal Caribbean’s CocoCay, Scholes believes the company will introduce a competitive offering by 2026.

### Conclusion

The cruise industry continues to thrive, even as other areas of the travel sector show signs of slowing down. With strong pricing power, innovative offerings like private islands, and the rollout of high-speed internet, cruise operators are well-positioned for continued growth. Wall Street remains bullish on the sector, with analysts forecasting further upside for major players like Royal Caribbean, Carnival, and Norwegian Cruise Line Holdings.

Source: cnbc.com

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