July 22, 2024

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Why the best value in travel right now might be a cruise

Why the best value in travel right now might be a cruise

It’s no secret that the cost of travel is soaring. The cost of flying has surged nearly 43{6932ee47e64f4ce8eedbbd5224581f6531cba18a35225771c06e4f1b3f0d9667} over the past year. Even basic hotels and resorts are charging eye-popping rates for rooms this fall, with average prices in some markets up more than 20{6932ee47e64f4ce8eedbbd5224581f6531cba18a35225771c06e4f1b3f0d9667}.

But there’s one type of trip where you can still find a relative deal: a cruise.

Much to the frustration of cruise line executives, the world’s biggest cruise brands haven’t been able to raise prices over the past year nearly as much as hotels, resorts and airlines as the travel industry rebounds from COVID-19 lockdowns.

That’s made what has long been a notable differential between the cost of land vacations and the cost of cruise vacations even wider than it was before — so wide that it’s verging on the ridiculous, some say.

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“We’ve seen this 40{6932ee47e64f4ce8eedbbd5224581f6531cba18a35225771c06e4f1b3f0d9667} gap to land-based vacation [this year]. It used to be about 20{6932ee47e64f4ce8eedbbd5224581f6531cba18a35225771c06e4f1b3f0d9667},” Royal Caribbean Group CEO Jason Liberty lamented Thursday in a conference call with Wall Street analysts. “We’re not happy about that gap.”

Royal Caribbean Group is the parent company of Royal Caribbean, Celebrity Cruises and Silversea Cruises.

Liberty’s estimate of a 40{6932ee47e64f4ce8eedbbd5224581f6531cba18a35225771c06e4f1b3f0d9667} differential in pricing isn’t hyperbole. Several Wall Street analysts that track pricing at travel brands in recent months have pegged the current difference between the cost of land and cruise vacations, when comparing like-for-like products, at around 30{6932ee47e64f4ce8eedbbd5224581f6531cba18a35225771c06e4f1b3f0d9667} to 50{6932ee47e64f4ce8eedbbd5224581f6531cba18a35225771c06e4f1b3f0d9667} — higher than they have ever seen.

Related: Some cruise lines have dropped fares as low as $26 a day

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In a recent analysis, travel insurance comparison site insuremytrip.com pegged the differential at around 30{6932ee47e64f4ce8eedbbd5224581f6531cba18a35225771c06e4f1b3f0d9667}, noting that real-time data it had on what customers were paying showed the average land trip costing $6,426 — $1,469 more than the average cruise.

Travel insurance companies have unusual insight into what people are paying for trips as their customers must declare the amount they are paying to contract for insurance.

The differential in pricing is particularly wide when comparing the big mass-market cruise lines such as Royal Caribbean and Carnival Cruise Line to comparable land-based hotels and resorts.

ROYAL CARIBBEAN

In a research note in late September, Truist lodging and leisure analyst Patrick Scholes said his firm’s proprietary data analysis showed that cruise fares at the six biggest cruise brands were down in the “low single digits” as compared to pricing levels in 2019, the last normal year before the pandemic.

Room rates at U.S. land-based resorts, by contrast, were up more than 25{6932ee47e64f4ce8eedbbd5224581f6531cba18a35225771c06e4f1b3f0d9667} from pre-COVID-19 pandemic levels, he said.

“We have not yet seen an acceleration of [cruise] prices, rather the degree of deceleration in pricing for new bookings over the past month has stabilized from the downward trajectory seen earlier in the year,” Scholes noted at the time.

Scholes called cruises the best value in the vacation world right now.

“Room rates at land-based resorts are at record prices, and so far the cruise lines have missed out on most of this leisure strength,” Scholes wrote. “Given this record pricing [at land-based resorts] and service levels that are arguably substandard for the rates one is paying, we see the best value in vacationing at the moment coming from cruising. Cruise prices, especially for the Caribbean, are at record lows whereas service levels are at their typical high levels.”

Related: 6 ways to get a deal on a cruise

Analysts say the differential in pricing is partly the result of the long shutdown of the cruise industry during the COVID-19 pandemic. Many cruise lines canceled cruises by the hundreds every few months during the pandemic, eventually remaining shut down for more than a year.

That, in turn, made many cruisers skittish about booking future trips on cruise ships, lest those trips eventually be canceled, too.

The result of such hesitation was that cruise lines started 2022 with their ships less booked than normal, and they’ve had to keep prices relatively low to get them filled. That wasn’t the case for hotels and airlines, which saw occupancies bounce back much more quickly in 2022.

The situation is exacerbated by the fact that cruise ships normally book up much further in advance than other types of travel. That means that a blip in bookings at any given time will affect occupancy levels on ships many months, if not a year or more, in the future.

Occupancy levels on cruise ships have been increasing throughout the year, but they still are running lower than normal.

In October, the world’s largest cruise company Carnival Corporation noted that occupancy levels at its nine brands averaged just 84{6932ee47e64f4ce8eedbbd5224581f6531cba18a35225771c06e4f1b3f0d9667} during the peak summer travel months of June, July and August — below the 87{6932ee47e64f4ce8eedbbd5224581f6531cba18a35225771c06e4f1b3f0d9667} that Wall Street analysts had been expecting and well below normal levels.

Carnival Corporation, which owns its namesake Carnival Cruise Line brand, as well as Princess Cruises, Holland America and Costa Cruises, usually reports ship occupancies during the summer months over 100{6932ee47e64f4ce8eedbbd5224581f6531cba18a35225771c06e4f1b3f0d9667} — something possible when more than two people stay in a cabin.

Passenger ticket revenue for the summer months at Carnival Corporation also came in well below Wall Street expectations, a sign the company was struggling to maintain pricing.

Related: These 3 cruise lines are throwing in tours worth thousands if you book soon

Royal Caribbean Group on Thursday also reported lower than normal occupancy for its most recent quarter and projected occupancies would remain below normal levels through the early part of 2023.

However, Liberty, the Royal Caribbean CEO, was optimistic when talking with Wall Street analysts on Thursday that occupancies on the company’s ships would return to normal by the spring or summer — and said he was confident the company could get its pricing up, too.

“We see there’s a lot of opportunity to close that gap [between land resort and cruise pricing] here over time,” he said during the call with Wall Street analysts. “We need to improve our loyalty programs. We need to be more one-to-one [with marketing] so that we’re putting offers in front of our guests that are very relevant to them individually, and [we need to] just bring more awareness [to the pricing differential], and that should all yield us closing the gap further to land-based vacation.”

Translation: Don’t expect the super-low cruise pricing to last for too much longer.

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