Could cruise pricing be higher in the years to come? Surprisingly, that looks to be the case.
Cruising has always had the draw of being an inexpensive vacation. Instead of paying separately for a flight, hotel, food, entertainment and more, it’s all included in the cruise fare… and usually for much cheaper than if you bought all of these items separately.
No doubt that value is still going to be there, as will cruises that can be relatively cheap vacations overall. It will still be possible to sail for a few hundred bucks on some shorter trips.
But if you’re expecting dirt-cheap cruise prices given the rough year the cruise industry has had, then it may be time to think again.
Why Cruises Aren’t Likely to Be Cheap in the Short Term
When it comes to sailing with a full ship, the cruise lines typically have one important tool they can use to pack the ship — price. Cruise ship isn’t full? Cut the price to get people on board.
By cutting rates, cruise lines can ensure that ships sail full, which helps to maximize the revenue from passengers onboard.
Of course, 2020 has been a nightmare for the cruise lines. Not just the suspension of sailing, but also negative headlines stemming from virus cases tied to cruise ships.
Given everything that cruising has been through, it’s logical to think that cruise lines would have to cut prices to fill rooms for when they return. After all, given the health crisis, few people would be wanting to take a cruise now, right?
That doesn’t seem to be the case.
In fact, demand for cruises appears strong. In a recent call, Carnival executives repeatedly cited “pent-up demand.” In fact, shortly after Carnival announced it planned to return in limited form in November 2020, its first cruises were already at capacity, with demand for rooms “very high” according to a spokesman.
In other words, despite the news, there is still seemingly strong demand for cruises. At the same time, cruising won’t come back all at once, limiting the supply of cabins.
The major lines plan a phased-in approach with just a few ships whenever they do return. Carnival, for example, plans to start back sailing with just six ships from its fleet.
Cruise lines are implementing dozens of new procedures and protocols. They want to ensure they can keep passengers healthy, and that’s easier to do when starting back with fewer ships.
In addition, it takes time to re-crew vessels, get ships ready for passengers following an extended layup, and for all ports of call to re-open. As cruise executives have said, it’s not just flipping a light switch to return to sailing.
So there’s strong demand, and fewer ships sailing. In addition, there’s one more factor to consider — limited capacity.
To plan for safer sailings, cruise lines are also drastically cutting the number of passengers on the first cruises back. Hard numbers haven’t been announced, but estimates of 50% of normal capacity have been cited. So not only are there fewer ships in the short-term as cruises return, but each ship will carry fewer people.
High demand, few ships, and limited capacity combine to keep cruise prices strong. In fact, Royal Caribbean even recently said its booking prices were higher for 2021.
But what about in the longer term, when we eventually get past the crisis and full fleets are back sailing?
Why Cruises Aren’t Likely to Be Cheap in the Long Term
If limited capacity is a major reason prices are still holding strong in the near-term, then once cruising resumes in full, the extra ships and rooms should mean lower prices, right?
At this point, that doesn’t seem to be the case either. During the crisis cruise lines have made major cuts to their fleets. Many older vessels have been sold. Carnival Corporation, which includes Carnival, Princess, and other lines, plans to dispose of a total of 18 ships.
These older ships typically sailed at cheaper rates, offering some of the better deals. As well, disposing of ships means that capacity will continue to be limited in the future.
Older ships leaving the fleet is common. They are usually replaced with larger — and more expensive — ships. But with the crisis, there’s been a disruption in future vessels as well.
Not only have new ships currently under construction been delayed due to the pandemic, but cruise lines have had to take on large amounts of debt to survive while not sailing. Between the debt loads and hazy future course of the pandemic, new ships aren’t being ordered. Given the time it takes to design and build a ship, that means there is going to be a smaller number of new ships for years into the future.
So while fleets have trimmed down the older and cheaper-to-sail ships, new ships are also going to be slow to add. That means constrained supply compared to before the crisis if things get back to normal.
“The bottom line is, there will be somewhat constrained capacity, dramatically constrained initially. And then over time still constrained.”
- Carnival Corporation CEO, Arnold Donald
And if demand doesn’t get back to normal? Cruise lines can control capacity by bringing back fewer ships from layup. Either way, higher prices look likely for years into the future.
In fact, on a recent investor update call, Carnival Corporation executives were asked about the reduced number of newbuilds, its impact on the industry, and if it means the ability to push prices higher as we move past the pandemic.
“You’re absolutely right,” Carnival Corporation CEO Arnold Donald said. “It’s conditions we’ve never experienced before. We plan to exit 18 ships… It reduces capacity. Yes, we’re bringing on new ships… but as you know, and as I pointed out, we only have one order in ’24 [2024] and one in ’25 [2025].”
“The bottom line is, there will be somewhat constrained capacity, dramatically constrained initially. And then over time still constrained.”
As we all know, when demand is high and supply low, it leads to higher prices.
Cruise Deals May Be Few, But Value Isn’t Going Away
Now, don’t take this to mean that cruising is going to be a vacation only the richest can afford or that you won’t be able to take a quick trip to the Bahamas or Caribbean without breaking the bank.
The value of cruising will still be around, and prices will still be within the reach of anyone looking to take a nice vacation.
But if you were expecting that there would be dirt-cheap cruise deals everywhere in the wake of the health crisis, that just doesn’t seem to be the case.
