Carnival Cruise Line Has a Problem That’s Great for Passengers

Royal Caribbean, MSC, and Virgin Voyages face the same issue and that could be very good for people looking to take a cruise.

After the pandemic devastated the cruise industry, a lot of questions remained as to how long it would take for the major cruise lines to get back to normal. The answer is kind of split as Royal Caribbean International (RCL) – Get Royal Caribbean Group Report and Carnival Cruise Line (CCL) – Get Carnival Corporation Report got their fleets up and running very quickly from ports in the United States.

Those ships started coming back into service in July 2021 sailing with limited passenger capacity and a lot of covid-related rules. Over time, the Centers for Disease Control and Prevention dropped those rules, then stopped tracking covid on cruise lines at all.

Now, Royal Caribbean has its full fleet back in service while Carnival still has a little ways to go, according to CFO David Bernstein’s comments during the cruise line’s second-quarter earnings call.

“While our return to guest cruise operations is essentially complete, we are still evaluating a few remaining deployment options as referenced in our business update release,” he said. “As a result, for 2023, we expect our capacity increase to be somewhere in the range of 3% to 5% compared to 2019.”

Carnival has also begun the process of moving three ships from its Costa brand to its namesake cruise line.

In many ways, the cruise industry has recovered from the pandemic, but one major problem remains and it’s one would-be passengers will like a lot.

Image source: Carnival.

Carnival, Royal Caribbean, MSC, Virgin Have a Pricing Problem 

Both Carnival and Royal Caribbean, along with rivals MSC and Virgin Voyages have returned to sailing with ships that can carry their full passenger loads. In many cases, the two public cruise companies are actually sailing at 90% or higher capacity. Neither has quite hit pre-pandemic passenger levels, but they’re well on their way to getting there.

Carnival CEO Josh Weinstein shared a lot of positives during the call but did point out a major problem.

“We are delivering a great all-inclusive vacation experience, convenient, great dining and entertainment choices, fantastic itineraries, beautiful and innovative ships, and the most amazing onboard teams, providing a hi level of personalized service than you can find anywhere on land or sea,” he said. “The issue is we are way too much of a value. We should not be priced at a significant discount to land, which is exactly the case today, anywhere from 25% to 50% based on itineraries.”

Basically, it’s cheaper to take a cruise — a vacation that includes all the food you can eat — than it is to take a comparable trip on land. That’s very good news for would-be passengers (and what Weinstein said is very obvious to people who cruised regularly before the pandemic).

Neither MSC nor Virgin Voyages are public, so they don’t report results but you can book many trips (there are always exceptions) on those cruise lines at prices well below what each line charged pre-covid.

Carnival Has a Plan to Fix its Pricing Problem

Cruise pricing is largely set by demand. That’s why Walt Disney (DIS) – Get The Walt Disney Company Report can effectively charge whatever it wants for access to Disney World. The parks can only accommodate so many guests and demand generally exceeds supply.

Royal Caribbean, Carnival, MSC, and Virgin can only raise prices if demand increases. Weinstein has some ideas as to how to do that.

“As our brands have now been increasing their advertising investment, we will increase awareness and consideration and actively target those that are new-to-cruise. While we’re still carrying a higher proportion of repeat guests, we have seen an improving trend in new-to-cruise and are already two-thirds of the way back to 2019 levels,” he said.

Advertising (and low prices) can bring in customers who have never cruised before, but that’s not the only way Carnival expects to bring those passengers onboard.

“About one-third of our guests have historically been new to cruise. And as you probably know, two of the most important drivers of new-to-cruise are word of mouth and advertising,” the CEO said. “With respect to word of mouth, after the pause, we have been building back our army of advocates that leave the ships, spreading the word about the unparalleled vacation experiences we deliver day in and day out.”

TheStreet Smarts

TheStreet’s Single Smartest Insight From The Day

Exclusive newsletter delivered to your inbox daily covering important investing topics pulled from TheStreet’s premium content.

Cut Through The NoiseYour Personal Financial AdvisorInvesting Cheat Sheet

Related Posts

Union Capital Financial Group Ltd, registered in the British Virgin Islands, does not provide investment services inside the United States. The company only provides consulting, advisory and educational services.