According to a report from CruiseWeek, this year's Wave Season has been unusual, with higher rates and slowing volume growth. However, with fewer ships scheduled to arrive in the next few years, this could become the norm.
Revenues vs. Passenger Counts
Is business good or not good? That's a question we asked after hearing some mixed commentary last week.
Retail leaders say business has continued to be strong (though some report demand in the contemporary space softened just a little, it's certainly not enough to signify a trend). But clearly, some cruise line travel partners report a significant change since the tremendous period from mid-November to mid-January.
One top industry source explains to us, whether one defines the past month as successful or not depends on how you measure "good"-- i.e., is it measured in terms of revenue or bookings? "We hear many agencies are down YOY in bookings (pax), but they are still up in revenue because average tickets are up," he summed up.
Same Time, But Next Year
One big change we're continuing to hear a lot about is how the top cruise lines' extraordinary push to sell 2025 departures is changing when and how bookings materialize.
There continues to be strong cruise demand moving into the latter half of February, but there's now an emphasis on business down the line, not close-in.
"The booking curve is pushing out much further as a result of the limited inventory in 2024," points out a national cruise seller. "The combination of less inventory and higher prices has definitely made it harder to grow pax numbers year-over-year."
Tying into this inventory situation is that a record number of consumers are seeing this year's cruise ads promoting products that don't start until the latter half of this year or even the latter half of next year.
So, four distinct, yet overlapping, elements in this year's Wave Season help to explain and epitomize the complexities of the current business cycle: 1) publicly traded cruise stock prices; 2) the enormity of the two biggest brands' TV ad campaigns; 3) the focus of those ads on future products; and 4) few new ships on order.
A Look at the Numbers
As for the first factor, even though most retailers are reporting strong demand for cruises, the stock market has seemed more bearish about the cruise outlook since the start of the year. For quite some time we've been hearing that people want experiences, not things, but the S & P 500 this year indicates that investors are back into things (tech, communications).
Some perspective: Last year, tech company Nvidia (which provides hardware and software for AI) was the number one percentage gainer among S&P 500 companies, followed by Meta Platforms (formerly Facebook), and then Royal Caribbean Group. Nvidia finished up 239% for the year, Meta was up 194%, and Royal Caribbean up by 162%. However, while Nvidia’s upward trajectory continues well into February, Royal's momentum on Wall Street has stalled.
Specifically, Barron’s reported on February 13 that Nvidia, along with Meta stocks, are the S & P 500’s two best performers for the first six weeks of the year.
Meanwhile, all three publicly traded cruise companies have moved lower since the start of the year. Royal Caribbean Group, for instance, is trading at $116.9 as of President's Day versus $129.5 at the finish of 2023. And that's even with the incredibly successful launch of Icon of the Seas.
Putting It in Context
For a different opinion, we heard from Sean Jenkins of Hedgeye Risk Management after last Monday's issue of Cruise Week, which reported on Travel Leaders Group President John Lovell's update to the trade press on the latest booking trends.
Jenkins: I think this [Lovell's report] is some of the most valuable context the market could hear right now. There seems to be a lot of consternation among investors about bookings' pace slipping and what that could portend.
I have been arguing that financial people are looking at the dynamics wrong, and pricing data and the outlooks from CCL and RCL ultimately supports the more optimistic view.
As examples, Jenkins specifically referenced Lovell saying in the report: “I look at Wave Season starting around November 15 and lasting for four months,” and Lovell's observation that, “Capacity is increasing – but certainly not at the same rate demand is increasing.”
Carnival Skews Far Forward
Which brings us to factor three: what the cruise lines were promoting in these highly viewed ads. Both Carnival and Royal promoted future products, to varying degrees. Some of Royal Caribbean's ads during these football games featured Utopia of the Seas, which doesn't start sailing until later this year. And all of Carnival's ads we saw showcased Celebration Key, which doesn't open until summer of 2025.
As one top industry observer told us, to advertise products that aren't currently in operation projects confidence in the future.
The heavy dose of Carnival ads in Wave Season has not been limited to the big football games. Carnival ads appeared during another high-profile TV event in February -- the Grammys -- again promoting Celebration Key.
Those watching the Grammys on February 4 (12 million viewers, one of the highest ranked programs in recent months outside of football) were treated during the TV breaks to a very relaxed Shaq O’Neal promoting Carnival’s Celebration Key.
The Promotion of Celebration Key
There have been the typical Carnival ads this Wave Season showing Shaq O’Neal relaxing on a deck chair, chatting with other passengers about fun ships, but in the Celebration Key ads, a ship appears only at the very end and very briefly.
Instead, the beautiful spot opens with Shaq comfortable in a reclining chair on the beach, drink in hand, with blue skies and palm trees in the background. The words “Introducing Celebration Key, summer 2025,” appear, followed by people in hammocks or in a big pool, etc.
Shaq pleasantly delivers the words that match the idyllic scenery: "Celebration Key, your key to paradise. This paradise has it all. Do absolutely nothing on a pristine beach or do everything the island has to offer. Unlock Carnival’s all-new exclusive destination at Grand Bahama."
So not only is this ad different from previous Fun Ship ads in that the fun being promoted is on the land side, but it's about something specific that isn't being launched until more than a year in the future. We don't recall Carnival ever doing an ad like this, and in our opinion, it's a winner.
Situation Serious, Not Hopeless
So all in all, it's been an unusual Wave Season, particularly for the last month, but this brings us to our last point; yes there are some big ships coming in 2025, and there's new ship orders as well, but as of now the new hardware on order for the years ahead is lower than average.
Hence. as one source told us, what's unusual now (higher rates, slowing volume growth) may not be so unusual in the future: "With fewer ships coming in the next few years, this situation could become the norm, unless we have an economic downturn."
We'll know more soon, as Norwegian Cruise Line Holdings reports to Wall Street on Feb. 27. Given all the unusual patterns we've been seeing in the past month, it should be very interesting to see what, if anything, that company's leadership has to say about 2025.
