The cruise industry is enjoying an unprecedented boom with around 35.7 million passengers expected to book a trip this year, up from 31.5 million in 2023 and 6% more than the number of passengers who set sail in 2019 according to the CLIA (Cruise Lines International Association).

Going on a cruise holiday is slowly become a more popular alternative then jumping on a plane or a high-speed train to Europe.

In a survey of 4,500 UK travellers carried out by the CLIA, 91% of respondents who had cruised previously said they intended to take a holiday at sea again, a 14% increase on 2019.

Of those who had never cruised, 72% said they were open to the idea, a 1% increase from 2019.

Many of those who wouldn’t normally consider going on a cruise are getting on board because all-inclusive package deals work out cheaper, not just for families but for solo travellers, and sailing is considered by some as being more environmentally-friendly than air travel.

‘We remain positive on travel going into 2024, with trading data around the year-end suggesting positive booking trends for summer 2024 for all aspects of travel, from tour operators to cruise lines,’ say analysts at HSBC.

‘Overall, the market is extremely strong, especially the top end of the market in terms of the most high-end luxury cruises,’ said Bob Levinstein, chief executive of cruise marketplace Cruise Compete.

WHAT IS THE APPEAL?

Cruise companies offer consumers a ‘one stop shop’ holiday experience combining transport, accommodation and entertainment which means travellers can sit back and enjoy their time on board.

There is a huge amount of choice in terms of itineraries, most of which include multiple destinations and ports of call which is an attractive option for holidaymakers as opposed to just visiting one destination by plan or train.

They also offer ‘all-inclusive’ packages meaning meals, drinks and tips on board are part of the deal which is appealing for those on a budget.

Historically the cruise market was aimed at older generations and retirees, who had large amounts of disposable income, but operators are increasingly keen to attract couples and families, while some have tailored their offering to the ‘young, free and single’ market.

As well as accommodation, restaurants and bars, most modern cruise liners now come with nightclubs, swimming pools and fitness centres for those that want to stay active rather than watch the scenery float by.

FULL STEAM AHEAD

Like the rest of the travel and leisure sector, the cruise industry suffered heavily during the pandemic as all sailings were cancelled.

In the second quarter of 2020, US operator Royal Caribbean (RCL:NYSE) reported a net loss of $1.6 billion while rival Carnival (CCL:NYSE) racked up $4.4 billion of losses.

Customers typically book their holidays between six months and a year in advance, meaning not only did the operators not receive any new bookings but they had to refund or rebook thousands of tickets while still covering the costs of keeping their ships operational and paying their staff.

From the start of 2020 to their low in early April that year, shares in Royal Caribbean fell 82% to $24.39 while shares in Carnival fell 84% to $8.49 over the same period.

Both firms have recovered strongly in the interim, with Royal Caribbean’s earnings consistently beating analysts’ forecasts over the past few quarters taking the shares back above their pre-Covid highs.

Carnival recently posted record quarterly revenue together with a reduced loss per share and saw record booking volumes for all future sailings, with the company able to pass through higher prices thanks to ‘an early start to a robust wave season’.

Cashing in on the renewed popularity of cruising and travel stocks in general, Swiss-headquartered operator Viking Holdings announced in February it intended to raise $500 million or more in a US listing.

Founded 27 years ago by Torstein Hagen, who is currently chairman, Viking is backed by private equity firm TPG among others and operates a fleet of more than 90 vessels on rivers, lakes and oceans across the globe.

CAN CRUISING EVER BE ‘GREEN’?

One of the big image problems the cruise sector has is its carbon footprint, with environmental group Friends of the Earth claiming the industry is ‘devastating our environment, oceans, sea life and coastal communities’.

According to the organisation, even a mid-sized cruise ship burns 150 tons of fuel daily and uses the cheapest, dirtiest fuel on the market.

However, cruise operators have gone back to the drawing board and new ships have advanced hulls which cut through the water more efficiently, saving fuel, as well as solar panels, energy-saving appliances and cooking-oil conversion systems to reduce waste, while itineraries are designed to minimise fuel consumption.

According to the CLIA more than 15% of the vessels to be launched in the next five years will be equipped to incorporate fuel cells or batteries and 85% of CLIA member ships coming online between now and 2028 will be able to plug into shoreside electricity, allowing engines to switch off at berth meaning a significant reduction in emissions.

PLENTY OF STOCKS TO CONSIDER  

The ‘big beasts’ of the sector in terms of their operations and market size are Carnival and Royal Caribbean, both listed in New York although Carnival also has a secondary listing in London.

Carnival has a portfolio of cruise brands covering just about every market segment with the most-recognised brands in the five big markets – North America, the UK, Italy, Germany and Australia – which make up 85% of the world’s cruise passengers.

It operates more than 90 ships, mostly based out of the US and mostly in the mid-to-upper tier, together with Cunard and Seabourn in the luxury segment, AIDA in the ‘casual premium’ market aimed at German customers, Costa in the Southern European and Chinese markets and P&O in the UK and Australian markets.

Chief executive Josh Weinstein said the firm had enjoyed ‘a fantastic start to the year’, with booking volumes hitting an all-time high and prices ‘considerably higher’, meaning customer deposits hit a first-quarter record of $7 billion, surpassing the previous record by $1.3 billion.

Although the Baltimore bridge collapse forced the company to switch its homeport temporarily, the impact is likely to be $10 million at most, or less than 1% of this year’s net income.

More significantly the firm has ordered its first new ships in five years, to be delivered to Carnival Cruise Line in 2027 and 2028.

In a research note, Shore Capital analysts said: ‘We continue to see significant attractions to the global cruise industry, especially the long-term structural fundamentals, although this appears to be very much reflected in Carnival’s current valuation, especially given its elevated debt levels.’

Rival Royal Caribbean operates around 30 ships under three brands – Royal Caribbean, Celebrity Cruises and Silversea Cruises – with some of its newest vessels such as Star of the Seas the size of a small town.

At the beginning of February, the company posted better-than-expected 2023 earnings thanks to a strong final quarter and said it expected record earnings this year.

President and chief executive Jason Liberty called 2023 ‘an exceptional year, propelled by unmatched demand for our brands from new and loyal guests’ and said the firm had ‘the wind in our sails’ with record-breaking bookings already for this year.

Also listed in New York is Norwegian Cruise Line Holdings (NCLH:NYSE), which like Royal Caribbean operates around 30 ships under three brands, Norwegian Cruise Line, Oceania and Regent Seven Seas.

The company ended 2023 with $8.5 billion of revenues, a 32% increase on the previous year, and returned to full profitability for the first time since 2019 thanks to full occupancy, higher prices and substantially lower costs.

President and chief executive Harry Sommer called 2023 ‘a momentous year of growth and achievement’ with the firm having taken delivery of three new ships, the most in a single year since it was founded in 1966.

Sommer also said Norwegian had entered 2024 at ‘all-time highs in our booked position and pricing’ with year-end advance ticket sales of $3.2 billion, a new company record and 56% above the level of the end of 2019.

Analysts at Morningstar said in a research note: ‘With ships fully deployed at historical occupancy levels, pricing surpassed pre-pandemic levels in 2023 and momentum has persisted into 2024. While Norwegian could intermittently see pricing competition in periods of macroeconomic distress, we believe its freestyle offering and attractive itineraries will keep passengers engaged with the brand.’

Although it is primarily known for its films and theme parks, US entertainment giant Disney (DIS:NYSE) operates its own cruise business which, like its rivals, enjoyed a highly successful 2023 thanks to strong demand and higher ticket prices.

The group has six ships, all with a much more classical design than their larger rivals and all designed to appeal to families, bringing elements of the theme parks to sea in addition to story elements from films by Walt Disney Animation studios and Pixar such as ‘Frozen’ and ‘Star Wars’.

In Europe, one of the larger companies in the sector is TUI Group (TUI) which operates 16 ships under three brands, TUI River Cruises, Hapag-Lloyd Cruises and Marella Cruises.

Over-50s travel and insurance group Saga (SAGA) also operates a cruise business and said it had ‘an outstanding year’ in 2023, with the trend set to continue this year thanks to ‘robust’ bookings.

The firm is expecting ocean cruise revenue to be up around 30% for the year to January 2024 while its river cruise business is expected to return to underlying profit for the first time since the pandemic.

However, the future of the cruise division is up in the air as Saga weighs its options to reduce its escalating £650 million debt pile.

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