Stop waiting for cruise deals — prices are on the rise

Airlines, hotels and resorts have been touting some crazy-low pricing in recent months to lure back travelers. But don’t count on similar markdowns from cruise lines.

In fact, if you’re in the market for a cruise right now, you should brace yourself for higher prices.

With demand for cruises scheduled to depart later this year surprisingly strong and the supply of available cabins smaller than in the past, cruise lines in recent months have been able to hold the line on pricing and even raise fares in many cases.

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“It’s clear that a lot of people want to cruise,” Jason Liberty, the CFO of Royal Caribbean Group, said on Monday to explain a recent jump in average fares at the company’s brands.

Speaking during a conference call with Wall Street analysts to discuss fourth-quarter earnings, Liberty said the company’s brands had seen relatively strong bookings during the fourth quarter at prices that were higher, on average, than in 2019 — the last “normal” year before the coronavirus pandemic brought cruising to a halt.

Liberty said bookings had been even stronger since the fourth quarter ended on Dec. 31 — even as the company’s marketing machine remained almost completely shut down.

Royal Caribbean Group has paused most marketing efforts due to the worldwide shutdown of most cruising that began in March 2020. The company’s brands have canceled most of their sailings through at least the end of April.

“Despite the lack of marketing spend, we have seen a 30% increase in new bookings since the beginning of the year when compared to November and December,” Liberty said.

Royal Caribbean Group is the parent company of Royal Caribbean — the world’s largest cruise line — as well as Celebrity Cruises and Silversea. It also owns stakes in German lines Hapag-Lloyd Cruises and TUI Cruises through a joint venture. It’s considered one of the bellwethers of the cruise industry.

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Liberty didn’t say exactly how much fares for cruises scheduled to take place later this year were up at Royal Caribbean Group’s brands. But the fact that pricing is now running ahead of 2019, on average, is notable.

During the company’s last conference call with Wall Street analysts, in November, Liberty said pricing for the second half of 2021 was down slightly when including a negative impact of bookings made with future cruise credits and roughly flat when excluding them.

The rise in fares for 2021 cruises as compared to pre-coronavirus times is in sharp contrast to the pricing situation at land-based hotels and resorts. Prices at land-based hotels and resorts have fallen significantly due to an imbalance between supply and demand as fewer people travel.

In January, the average daily rate at U.S. hotels was 27.8% below prices from the year before, according to STR, a company specializing in hotel analytics. Hotel occupancy was down by 28.3%.

The supply-and-demand situation for cruise lines in 2021 is far different.

Unlike many land-based hotels and resorts that have remained open for much of the past year, most cruise ships haven’t operated at all since the COVID-19 outbreak was declared a pandemic in March 2020. That’s created huge pent-up demand from cruise fans that’s pushing up prices.

Many cruisers who saw their 2020 trips canceled already have rebooked for later this year or 2022, scooping up available cabin space.

Also pushing up cruise pricing is the fact that the supply of cabins for cruises later this year is down as compared to a year ago due to the removal of more than two dozen ships from the fleets of the world’s biggest cruise lines.

Related: Royal Caribbean to slash fleet size with the departure of older vessels

Cruise lines also have cut capacity for later this year by preemptively canceling voyages on a number of ships — in some cases due to maintenance requirements. Three of Carnival’s 24 vessels, for instance, now aren’t scheduled to return to service until November.

Executives at all the major cruise brands have said they’ll resume cruising with just a few ships at first and add more vessels over time. Such a strategy will further constrain supply.

In addition, the ships that do return to service are likely to operate at a reduced capacity for some time due to new government rules aimed at slowing the spread of COVID-19, further reducing cabin supply.

Royal Caribbean in December resumed operations with a single ship in Singapore that’s been running at just 50% of capacity due to such government rules. During Monday’s conference call, a Royal Caribbean executive said the company was in discussions to raise the cap to 65%.

Even if the supply of cruise cabins increases to a point where it outstrips demand over the coming year, cruise lines may resist the urge to slash prices to keep ships full.

In recent years, cruise lines have shifted to a strategy of using promotions that throw in “value add” items such as free drinks or free Wi-Fi with bookings to fill cabins instead of dropping prices.

Some cruise brands, such as Norwegian Cruise Line, also have pursued a “market to fill” strategy that involves spending more on marketing during times when bookings are light. The idea is that the lines won’t drop prices but instead spend more on outreach to draw in customers.

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Featured image courtesy of Royal Caribbean.