Cruise Lines: Worth The Investment Risk?

The cruise industry was one of the hardest-hit sectors during the COVID-19 pandemic, with cruise lines ceasing operations for several months. However, since the middle of 2021, the industry has been recovering, with cruise lines reporting a strong rebound in demand and bookings. This recovery has translated into strong financial performances, with some of the top cruise lines posting record numbers in 2023.

Despite the impressive recovery, the cruise line industry still faces challenges. High debt loads incurred during the pandemic, rising fuel costs due to inflation, and the risk of future pandemics could impact the industry's prospects.

So, is it smart to invest in cruise lines right now? The answer depends on your risk appetite and investment horizon. Cruise line stocks tend to be volatile, but they offer solid upside potential for long-term investors, especially if travel demand remains robust.

If you are considering investing in cruise lines, it is essential to carefully research the companies, understand their business models, and assess the risks and opportunities in the industry.

Cruise line stocks are bouncing back

After a challenging few years, cruise line stocks are making a comeback. The cruise line industry was one of the hardest-hit sectors during the COVID-19 pandemic, with ships docked for over a year and passenger numbers plummeting. However, the industry has proven its resilience, and cruise demand has picked up significantly.

Strong Comeback

The cruise industry has made an impressive recovery, with passenger numbers surpassing pre-pandemic levels. In 2022, the number of cruise passengers jumped to 20.4 million, and this number increased further to 31.7 million in 2023, outperforming other forms of travel and tourism. This rebound has been driven by a combination of factors, including the industry's ability to adapt and cater to new and younger customers, with cruise lines reporting an increase in new and younger passengers.

Top Performers

Several cruise line companies have stood out with their strong performance and recovery. Here are some of the top cruise line stocks to watch:

• Carnival Corp. & PLC (CCL): Carnival is the world's largest cruise line, with a diverse portfolio of brands catering to different customer segments. The company has reported strong financial results, with revenue more than doubling year over year.
• Royal Caribbean Cruises Ltd. (RCL): Royal Caribbean is known for its innovative approach, offering state-of-the-art amenities and unique experiences. The company has made strategic investments and expanded its fleet, contributing to its record revenue numbers.
• Norwegian Cruise Line Holdings Ltd. (NCLH): Norwegian Cruise Line offers a laid-back atmosphere with a focus on casual cruising. The company has reported impressive revenue growth, outperforming the market with a nearly 70% year-to-date gain.
• Lindblad Expeditions Holdings Inc. (LIND): Lindblad Expeditions is a smaller cruise line company that provides expedition cruising and travel services. They have rewarded shareholders with a significant year-to-date return and have seen a substantial increase in revenue and occupancy rates.

Risks and Challenges

While the cruise line industry is experiencing a strong rebound, it's important to consider the risks and challenges. The travel sector carries inherent risks, and cruise operators must carefully manage their debt and profitability. High debt levels and thin profit margins could pose challenges in the event of an economic downturn. Additionally, the industry must continue to adapt to changing customer expectations and demands to maintain its momentum.

Outlook

Cruise line stocks have demonstrated their potential for strong returns, and the industry is expected to continue benefiting from the growing demand for travel. However, investors should carefully assess the risks and volatility associated with this sector. For long-term investors, cruise line stocks may offer solid upside potential, particularly with the industry's focus on innovation and unique experiences driving customer loyalty.

The best cruise stocks offer unique experiences

After a few difficult years, cruise line stocks are bouncing back, with some of the top cruise lines posting record numbers. The best cruise stocks all offer unique experiences that drive customer loyalty.

Royal Caribbean Cruises

Royal Caribbean (RCL) is distinguished as being one of the most innovative cruise lines. Its ships are packed with state-of-the-art amenities, including virtual balconies, massive water slides, skydiving at sea, and even Broadway shows. The company has made a number of investments, expanded its fleet, invested in ships powered by clean energy, and prioritised international expansion. Its investments appear to be paying off, with record revenue numbers of $13.9 billion in 2023.

Carnival

Carnival (CCL) is the largest cruise company in the world. It was also one of the first to offer cruises at affordable prices. This cruise line is still known for its reasonable prices and ability to offer fun for everyone. Carnival cruises are popular among families and groups of friends, including younger generations. Carnival excels in customer satisfaction, winning the 2024 USA Today Readers' Choice Awards for the best ocean cruise line.

Lindblad Expeditions

Lindblad Expeditions (LIND) isn't your typical cruise company. While other cruise lines carry thousands of passengers per ship, Lindblad specialises in smaller, more expensive adventure cruises. The maximum capacity for these cruises is typically between 48 and 148 passengers, depending on the trip. Lindblad offers premium, one-of-a-kind experiences, with expeditions all over the world, including Antarctica, the Caribbean coast, and Patagonia. Because of the types of trips offered, Lindblad has built a loyal base of wealthy customers.

Norwegian Cruise Line Holdings

Norwegian Cruise Line (NCLH) is a hit among casual cruisers and is known for its laid-back atmosphere. Norwegian offers what it calls "freestyle cruising", meaning no dress codes, no set dining times, and no assigned seating. Norwegian offers a variety of cabin categories, enabling it to accommodate every type of traveller, from solo travellers to large families. Norwegian is the smallest of the three major U.S. cruise lines and has higher debt levels compared to its competitors, but it is worth keeping an eye on. The company paid down $1.9 billion in debt last year, kept its ships full, and increased capacity, taking delivery of three new ships in 2023.

Cruise stocks are volatile but offer an upside for long-term investors

The cruise industry has been one of the hardest-hit sectors during the COVID-19 pandemic, with operations ceasing for months and companies having to sell stock and issue debt to stay afloat. However, as of 2024, cruise line stocks are bouncing back, with demand for cruises increasing and some of the top cruise lines posting record numbers.

Volatility and Risk

Cruise line stocks tend to be volatile, and the industry still faces challenges, including high debt loads and the risk of future pandemics. Cruise companies have also struggled with hiring back employees, which has led to cancellations and reduced onboard amenities. Additionally, the travel sector carries some risk, and a slowdown in travel demand can hurt cruise companies that carry significant debt.

Upside for Long-Term Investors

Despite the risks, cruise line stocks offer a solid upside for long-term investors. The cruise industry has made a strong comeback, with the number of cruise passengers surpassing pre-pandemic numbers. Cruising is also growing in popularity with younger generations, and there is a passionate customer base with high customer loyalty and repeat passengers.

Top Cruise Line Stocks

When considering investing in cruise line stocks, it is important to research the companies and their financial positions. Some of the top cruise line stocks include:

• Carnival Corp. & PLC (CCL)
• Royal Caribbean Cruises Ltd. (RCL)
• Norwegian Cruise Line Holdings Ltd. (NCLH)
• Lindblad Expeditions Holdings Inc. (LIND)

In conclusion, while cruise stocks are volatile and come with risks, they can offer an upside for long-term investors. The industry has shown a strong recovery, and the demand for cruises, especially among younger generations, is growing. However, it is crucial for investors to carefully research and monitor travel demand to gauge the risk of their investments.

The cruise industry has made a strong comeback

The cruise industry has made a remarkable recovery since the devastating losses of the pandemic, with demand for cruises bouncing back and bookings on the rise. The industry faced unique challenges during the pandemic, with ships docked for over a year, causing their owners to lose out on billions in revenue. The number of cruise passengers plummeted to just 4.8 million in 2021. However, the industry has proven resilient, and passenger numbers surged to 20.4 million in 2022 and 31.7 million in 2023, surpassing pre-pandemic levels.

This strong comeback is reflected in the performance of some of the top cruise lines, which have posted record numbers. Royal Caribbean Cruises, for instance, reported record revenue of $13.9 billion in 2023, while Carnival Corporation, the world's largest cruise company, reported an all-time high revenue of $21.6 billion in the same year.

The rebound in the cruise industry is also evident in the strong travel demand and high occupancy rates. In 2022, occupancy rates on many cruise lines exceeded 100%, indicating close to full capacity. This resurgence in demand has been partly driven by a reduction in ticket prices, with average ticket prices for the "Big Three" cruise operators dropping to $45 per person per day in 2022, down from pre-pandemic prices of $80.

The recovery in the cruise industry is further supported by the growing popularity of cruises among younger generations. According to Cruise Lines International Association, 36% of cruise travellers are now younger than 40, and 27% of cruisers over the last two years are new passengers.

While the cruise industry has made significant strides, it is still facing challenges. The cost of servicing debt accrued during the pandemic, along with suppressed revenue, continues to impact profitability. Additionally, with a potential recession looming, it remains to be seen how long this rebound in cruise bookings will last. Nevertheless, the cruise industry's loyal customer base and the strong demand for travel bode well for its future prospects.

The biggest cruise companies own several cruise lines

The cruise industry is dominated by a few major companies, each owning several cruise lines. These large companies have been able to recover well from the pandemic, with strong demand for cruises in 2023 and a return to pre-pandemic passenger numbers.

Carnival Corporation & plc, also known as Carnival UK, is the world's largest cruise company. It operates over 100 ships across nine cruise lines, including Carnival Cruise, Holland America, Princess, Seabourn, P&O Australia, P&O, and Costa Cruises.

Royal Caribbean Cruises Ltd manages over 40 ships across its brands, including Royal Caribbean International and Celebrity Cruises. They also have partial ownership of TUI Cruises, Pullmantur, and Hapag-Lloyd.

Norwegian Cruise Lines International has around 30 ships sailing under its three brands: NCL, Regent Seven Seas, and Oceania Cruises.

These large companies have a diverse range of offerings, from budget-friendly to luxury cruises, catering to different customer segments and providing unique experiences to drive customer loyalty.

Frequently asked questions