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Why you shouldn't expect bargain-basement cruise deals anytime soon

May 11, 2020
7 min read
Why you shouldn't expect bargain-basement cruise deals anytime soon
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It's only a matter of time until cruise lines begin rolling out monster deals — right?

That's been the conventional wisdom among cruisers and cruise industry watchers ever since lines began shutting down operations in March due to the coronavirus pandemic, and for good reason.

After past crises that have caused a severe travel downturn, such as the Sept. 11 attacks in 2001, cruise lines have turned to big discounts to get people back to booking.

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This time, though, conventional wisdom may be wrong.

Visit TPG’s guide to all coronavirus news and updates

When cruise lines begin to resume operations in the coming months -- assuming they do -- the markdowns on sailings may not be nearly as great as many people seem to think, some industry watchers now say.

"Privately, travel agency leaders are being told by cruise executives that cruise lines have no intention of dumping prices, a la what was seen post Sept. 11," Mike Driscoll, the editor of industry publication Cruise Week, told TPG. "At this point, there's not a strong need to dump pricing."

How can this be? Cruise pricing always has been driven by supply and demand, and demand for cruises clearly is down. In regulatory filings in recent days, two of the biggest cruise companies have used the term "meaningfully lower" to describe bookings for the rest of 2020. Lower demand for cruises normally leads to lower pricing.

But it turns out demand isn't the only thing that's down. So is supply.

In recent days, several cruise companies have mapped out a return to service later this year that involves initially bringing back just a handful of ships.

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In one of his first one-on-one interviews since the coronavirus crisis began, Norwegian Cruise Line Holdings president and CEO Frank Del Rio on Thursday told TPG the company initially would restart operations with just five or six of its 28 vessels.

Norwegian Cruise Line Holdings is the parent company of Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises.

Del Rio offered a scenario where just three Norwegian Cruise Line ships initially resume operations in the fall along with a single vessel from the Oceania and Regent brands. That would be fewer than 20% of the company's ships.

Norwegian Cruise Line operates some of the largest vessels at sea, including the waterslide-topped Norwegian Bliss. (Photo courtesy of Norwegian Cruise Line).
Norwegian Cruise Line operates some of the largest vessels at sea, including the waterslide-topped Norwegian Bliss. (Photo courtesy of Norwegian Cruise Line).

From there, the company only would add another four to six ships into operation each month. Del Rio said he envisioned a six-month process to get every vessel back into service.

Cruise giant Carnival Corp. also appears to be mapping out a strategy to add back ships at a measured pace. The company's Carnival Cruise Line brand recently announced plans to resume sailings in August with just eight of its 27 ships. Sister brand Princess Cruises said a couple days later it plans to have just one of its 18 ships back in service in August, with more coming on line slowly over the following months.

Related: 2 of the world's biggest lines just canceled nearly all summer sailings

Such an incremental return to service is part of a conscious strategy to avoid having to resort to massive discounting to fill ships, Driscoll suggested.

"The cruise retail channel is being told that phasing in ships avoids having to dump pricing," he said, referring to the travel agents that still sell a large proportion of all cruises.

Indeed, Del Rio told TPG outright that the company does not plan to do unusual discounting as it brings back ships, even if that means ships sail less full. He said ships likely would sail just 50% or 60% full initially due to lack of demand. That's far less full than normal.

“We believe in our product. We believe in the value proposition of cruising, the value proposition that our three brands offer and our customers obviously believe in it because we have [had] the highest yields,” he said in explaining why the line wouldn't be doing unusual discounts.

In their efforts to balance supply and demand, cruise lines are being helped by the fact that many people who had been scheduled to sail on recently canceled voyages are now holding future cruise credits that must be used in the next year or two.

Related: Why you shouldn't take a voucher for a canceled cruise

As these people have begun to rebook their trips for next year and beyond using the credits, it has helped prop up demand for 2021 and 2022 sailings that might otherwise be down.

In a regulatory filing on Friday, Royal Caribbean Cruises Ltd. (the parent company of Royal Caribbean, Celebrity Cruises, Azamara and Silversea) said current bookings for 2021 are "within historical ranges" of where they normally should be at this time of year with pricing that actually is up, not down, in the "mid-single digits," percentage-wise.

Not that we should read too much into statements about booking trends for 2021. As leisure analyst Felicia Hendrix of Barclays pointed out Monday in a research note to investors, it's still early in the booking cycle for 2021.

"Only a small percentage of 2021 is booked at this time," Hendrix noted. "We would put more credence in booking color once the industry opens up."

Related: Yes, people still are booking cruises for 2021

Of course, this isn't to say we won't see any discounts in the coming weeks and months. Even in recent days, Carnival has offered some fall sailings to Ensenada, Mexico, out of Long Beach, California, for as little as $25 per person, per day. The line has priced some short Bahamas and Western Caribbean sailings starting at $26 or $27 per person, per day.

Those are, indeed, relatively low prices. But, for now, they are more the exception than the rule. There always will be tactical pricing moves on specific itineraries and sailings. What industry watchers are not expecting are significant, across-the-board markdowns of a sort that are beyond the normal.

One other reason that we may not see drastically discounted cruise pricing in the coming months: The nature of the coronavirus outbreak itself.

In his talk with TPG, Del Rio noted that pricing isn't what's keeping people from booking cruises right now. Instead, it's concerns about staying healthy.

Dropping pricing won't help in a situation like this, he suggested.

“All the research that we’ve seen, and we’ve done quite a bit, is that customers’ number one criteria for coming back to cruising is they want to feel safe,” he said. “There is no amount of discounting, no amount of giveaways, that brings them back.”

Additional resources for cruisers during the coronavirus outbreak:

Featured image by A Royal Caribbean ship at sea. (Photo courtesy of Royal Caribbean).

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