Be warned, cruisers: Cruises aren't as cheap vs. land resorts as they used to be
Bad news, cruisers: The era of the incredible cruise deal is over — at least for now.
Cruise companies in recent weeks have reported sharply rising yields — a measure of the money they are bringing in per day per passenger — and noted that cruises are no longer as inexpensive as they used to be, compared to land-based resorts.
"Last year we talked around having a 40% to 45% gap [in pricing] to land-based vacations," Jason Liberty, Royal Caribbean Group's CEO, noted last week in a conference call with Wall Street analysts. "Our yields in 2023 rose 13.5% ... so we obviously made a dent into that."
Speaking with analysts after Royal Caribbean Group reported strong earnings for the fourth quarter of 2023, Liberty said the company expected to close the gap in pricing with land-based resorts even more this year.
"We are obsessed about [it] really," Liberty said. He noted that the company's focus as a business of late is more about competing with land-based resorts than other cruise companies.
"It's more about how do we close that gap — how do we compete with a land-based vacation?" Liberty said.
Royal Caribbean Group is the parent company of Royal Caribbean, the world's largest cruise line, as well as Celebrity Cruises and luxury brand Silversea Cruises. It's also a part owner of Germany's TUI Cruises and Hapag-Lloyd Cruises.
Cruises are still the better value
Liberty didn't give an estimate of what he saw as the differential in pricing between cruises and land resorts. However, in a report to investors in mid-January, leisure travel analyst Patrick Scholes of Truist pegged the percentage at around 25% to 30%.
While still notable, the differential is down significantly from just two years ago; back then, some Wall Street analysts estimated that cruises, on average, were priced as much as 50% below the cost of land resorts when comparing similar products.
"We are gaining momentum in our ability to close the unwarranted value gap to land-based alternatives," Josh Weinstein, Carnival Corporation's CEO, recently told Wall Street analysts.
Related: Is a cruise right for you? Start by asking yourself these 7 questions
Weinstein spoke with analysts in late December after Carnival Corporation announced solid quarterly earnings. He suggested the company's success in drawing more first-time cruisers over the past year contributed to closing the differential between cruise pricing and land-based resort pricing.
The increase comes as demand for cruises in general soars.
"In 2023, we captured over 3.5 million new-to-cruise guests and remain well-positioned to continue to take share from land-based alternatives," Weinstein said.
Related: Cruises vs. all-inclusive resorts: Which is the better value?
Weinstein also suggested that because COVID-19 caused land resorts to cut back or eliminate many service offerings, cruise lines might have an edge over resorts in raising rates these days since they provide better service.
"We can further champion the fact that while many land-based alternatives have pulled back on service levels, we still deliver incredible service to our guests, thanks to our amazing crew," Weinstein explained.
Carnival Corporation is the parent company of Carnival Cruise Line, Princess Cruises, Holland America and six other major lines that collectively account for nearly half of all cruises taken worldwide.
Royal Caribbean Group's Liberty says his company's cruise brands are working hard to get people to stay in the Royal Caribbean Group "ecosystem." The goal is to keep them booking again and again with one of the company's brands.
It's something the "land-based [resort world] does very well," he added.
The company is asking, "How do we make sure that focus on a vacation of a lifetime evolves into a lifetime of vacation [with Royal Caribbean Group]?" according to Liberty.
He suggested the recent unveiling of Royal Caribbean's much-awaited Icon of the Seas — the line's biggest and most amenity-packed vessel ever — and an expansion of its private island in the Bahamas, Perfect Day at CocoCay, was helping the company compete with land-based resorts.
"When you think about what we're doing on the destination side with Perfect Day, as an example, when you look at Icon, you can see in that how it's an extremely competitive product — we would probably argue even a better product — to what's happening on land," Liberty said. "And that's by us continuing to dream and innovate and deliver on that. That's going to chip away further and further into that value gap to a land-based vacation."
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