Royal Caribbean leans into shorter cruises, more experiences

With consumers getting more selective on how and where they vacation, cruise lines are fighting for Americans’ tourist budgets. Royal Caribbean thinks shortening trips and packing the times with activities and exclusive opportunities will keep customers hooked.

“I believe we’re an experience-driven mindset,” Royal Caribbean CEO Jason Liberty told CNBC’s “Squawk on the Street” this week. “Over half of our guests are literally millennials or younger, and once you survey those guests, about 42% of them say in the following 12 months their plans are to truly go on shorter vacation experiences.”

Onboard Royal’s Utopia of the Seas, the world’s second-largest ship with a maximum capability of nearly 5,800 passengers, customers are welcomed to 13 pools, 21 dining options, two casinos, and way more. That is the second cruise ship Royal Caribbean is bringing to market within the span of six months. Liberty says the voracious appetite to cruise post-pandemic has not died down.

“We’re not seeing any pullback from the patron, whether that is planning their vacation experiences further out … [or] then on the ships, they exit they usually proceed to spend,” Liberty said. “There just isn’t an area on the ship that we have seen a change of their spending behavior.”

To scale its business and widen its appeal, Royal Caribbean is the right way to higher compete with other forms of vacations customers go for, like skiing, casinos or theme parks.

“Once we have a look at what our guests are doing when they don’t seem to be with us, they’ll Orlando, they’ll Vegas, they’ll all-inclusive resorts,” Liberty said. “What we’re attempting to do is make sure that that our experience, whether on the ship or at our private islands, is something that is very competitive with land-based vacation.”

Morningstar travel and leisure analyst Jamie Katz thinks Liberty’s technique to get the Disney theme park traveler on board is working.

“The American traveler doesn’t all the time have time to take a six- to eight-day cruise attributable to work schedules and children’ school calendars,” Katz said. “A 3-day cruise provides customers with more options.”

Considered one of the advantages of bringing a latest ship to market — you are capable of charge more.

“You are really seeing sizable pricing premiums. Historically, pricing of a latest ship is a 20% premium to existing ships across the industry,” said Patrick Scholes, travel and leisure analyst at Truist Securities.

Scholes said the Utopia price bump for Royal Caribbean could possibly be even higher.

Liberty said he expects higher pricing to carry into the second half of the yr, pointing to the “value gap” between cruises and land-based vacations.

Rival Carnival, too, has raised prices amid strong demand.

Beyond Utopia, there aren’t too many ships coming online from the cruise giants.

Royal Caribbean currently has the strongest order book within the industry. The corporate’s Icon of the Seas, the most important cruise ship on this planet with a capability of seven,600 passengers, made a splash earlier this yr.

On Royal Caribbean’s recent earnings call, executives said Icon bookings are holding strong through 2025.

“We’re entering a two- to three-year period where there are minimal variety of ships coming online. Typically, the industry grows supply by 5% to 7% ever yr,” Scholes said.

But constructing an enormous cruise ship requires extensive work. Wall Street analysts estimate it takes three to 5 years to order and get a ship delivered.

Norwegian Cruise Line is working on bringing eight latest ships to market in the following six years.

Viking Cruises, which went public earlier this yr and has seen its stock trade well above its debut price, is bringing 4 latest ocean cruise ships to market over the course of the following three years, not including its river-based ships.

Correction: This story has been updated to reflect the right number of recent ocean cruise ships Viking is bringing in