Cruise lines will have to lower prices in the second half of 2022 to fill ships because cumulative bookings are “in a deep hole” compared to 2019 levels, according to a report written by Truist Securities equity research analyst C. Patrick Scholes.
Based on data analysis and conversations with large travel agencies specializing in cruises, Scholes said, “Consumers are clearly responding to the attractive prices / promotions, most notably for sailings within 90 days, especially in light of record room rates for land-based hotels and home rentals. However, prices are nowhere near where cruise lines want them to be, even more so with rising food and fuel costs. “
The good news for cruise lines is that guests’ onboard spending is at record levels, a trend in cruising since the lines returned to service from the pandemic. It’s not good news for travel agencies, however.
“Travel agency executives speculate that there is a shifting paradigm to give up more on the headline ticket price in order to get people on board to spend. Adding to the profitability of onboard spend is that cruise lines do not have to pay commissions to travel agencies on the onboard revenue, “the report said.
2023 cruise prices could fall, too
Scholes wrote that 2023 pricing is holding for now, but that the new year is seven months away and current booking trends do not look good. He wrote that the booking pace for 2023 “continues to decelerate and is significantly below comparable 2019 levels.”
Therefore, the cruise lines might cut prices to fill ships in 2023, similar to what’s happening this year.
“Prices are often not sticking when it comes time for final payment a month out from departure,” Scholes wrote. “Some prices have dropped by 20% to 30% since the time of the initial booking.”
Discounting is of concern because “history has shown that it takes years for pricing to return to pre-discounted levels,” Scholes wrote.
Illustrating the cruise lines’ pricing issues, travel agency executives told Scholes that the lines haven’t added fuel surcharges because they do not have the pricing power to do it without putting even more pressure on bookings.
Excess supply also may be a factor in falling prices, as supply growth is approximately 12% above 2019 levels and up another 6% to 7% in 2023, Scholes wrote.
Prices holding for luxury cruises
Prices for luxury cruises are holding up much better, according to the report. Because the luxury segment is about one-third of Norwegian Cruise Line Holdings’ business, NCLH is better positioned than Royal Caribbean Group and Carnival Corp., for which luxury is about 10% and 5% of their businesses, respectively.
Perhaps not coincidentally, NCLH has “mostly resisted price discounting whereas others are more aggressive,” travel agency executives told Scholes. CEO Frank Del Rio has consistently and often said that NCLH will not discount cruises.
When will cruise lines not require vaccination?
Demand will markedly increase for mass-market lines when the cruise lines drop Covid vaccination requirements, the report noted, but that is not expected to happen this year.
The CDC recently reduced the recommended vaccination threshold for ships from 95% to 90%, but the reduction “has not moved the needle for demand,” according to Scholes’ travel agency contacts.
Additionally, a percentage of people will not go on a cruise until the Covid testing requirement is removed, the report said.