A hotel room that sells for $100 a night comes with a place to sleep, maybe a pool, and if you are really lucky, a free, very mediocre breakfast. Buy a cruise cabin for $100 a night -- something that's easy to do right now -- and you get your cabin, multiple pools, hot tubs, shows, live music, and as much food as you can eat from multiple venues.
That's a great deal when cruise prices are relatively in line with land-based vacation prices. While they're depressed, which they have generally been since the cruise industry returned from its covid-related shutdown in July 2021, both Royal Caribbean Group (RCL) and Carnival Cruise Lines (CCL) expect that to change.
Both cruise lines have been aggressive in positioning their fleets, managing capacity, and building excitement. Carnival recently added Celebration, its newest U.S. flagship, and Royal Caribbean has Wonder of the Seas, which began sailing during the pandemic.
Carnival CEO Josh Weinstein made it clear that he has a plan to bring cruise pricing higher, and he talked about it during the cruise line's fourth-quarter earnings call.
Carnival Cruise Line
Carnival Sheds Ships, Ramps up Ads
Carnival removed a number of ships from its namesake brand in 2022. It also took three ships from its Costa line, which sails in Europe and has been impacted by both covid and the war in Ukraine, and assigned them to Carnival, giving that cruise line a new experience to market.
Weinstein has been focusing on making the various Carnival brands as efficient as possible. This has included adding new ships and dropping old ones.
"When coupled with the delivery of larger, more efficient ships, including the successful introduction of Carnival Celebration last month and the addition of Arvia for P&O Cruises just last week, this will result in nearly a quarter of our fleet consisting of new capacity," he said. "This fleet transformation results in an 8-percentage-point increase in balcony cabins, along with a tremendous increase in available real estate on board to deliver even more differentiated onboard experiences and generate associated revenues contributing to durable revenue growth going forward."
Basically, newer ships come with more revenue opportunities than older ones and Carnival used the pandemic to reset its fleet, adding new ships and phasing out older ones. Weinstein has also taken steps to let customers new and old know what the Carnival cruise lines have done.
"We are capitalizing on the 25% to 50% value gap for land-based alternatives that, frankly, should not exist with new marketing campaigns to communicate our significant value advantage to land-based alternatives, including newly launched digital creatives from several brands," the CEO explained. "We plan to continue these increased investments in advertising as we head into next year to promote a strong 'wave' season where we capture disproportionately higher bookings for the year, particularly our important summer season."
Weinstein has his various brands focusing on maximizing revenue with an eye toward bringing prices higher.
"On the revenue management side, we are ensuring that each brand is utilizing pricing philosophies to maximize revenue, from launch to sailing, and sharing best practices across brands," he added.
Royal Caribbean Wants Higher Prices Too
Royal Caribbean Group President Michael Bayley has also commented on cruise prices being too low. He explained why that has been the case in an interview with TheStreet.
"All of us were coming from very low load factors. And we were trying to get to our model number of 100% plus. And so, yeah, pricing was a challenge during that period," he said.
The Royal Caribbean executive is confident that higher prices will return in 2023.
"I am more optimistic about pricing now than I'd been before. I think we've seen ourselves, our load factors are back, our bookings are solid, and our pricing is recovering," Bayley said.
Royal Caribbean has Icon of the Seas, the first in a new class of ships, set for delivery late in 2023. Bookings on that new ship have been at record levels. In a broad sense, while cruise prices have been depressed, newer ships have been selling at premium prices.
