Americans have gotten nervous about the economy. Prices have gone up on housing, cars, food, gas and pretty much everything else. And, while the jobs market has generally been strong and some of those rising prices have stabilized, or even dropped a little, it's fair to say that more people are being cautious about how they spend money.
That does not mean consumers have cut all discretionary spending. After roughly two years of pandemic-influenced living, people want to get out of their homes -- they're just being more careful than usual when it comes to how they spend their money when it comes to having fun or taking a vacation.
On one hand that's good news for Royal Caribbean (RCL), Carnival Cruise Line (CCL), and MSC. All three cruise lines can argue that they offer a good value compared to land-based vacations.
The problem for the cruise lines (and in the case of Royal Caribbean and Carnival, their shareholders) is that the value might actually be too good.
Image source: Royal Caribbean/TS
Cruises Are Really Cheap Right Now
Right now you can book an interior room on a 3-night cruise the weekend of Nov. 4 out of Miami on Freedom of the Seas, a mid-tier, "Amped" Royal Caribbean ship, for $554 (less if you qualify for discounts based on age or where you live). The same weekend on the Carnival Conquest (a comparable, but slightly less nice ship) is available for $556.
Those prices include all taxes and port fees as well as all meals in a variety of restaurants. Yes, drinks will cost extra, but they cost extra on land-based vacations as well.
For comparison's sake, a three night stay that same weekend at Walt Disney's (DIS) All Star Movies Resort -- the company's lowest-tier value resort -- would cost you $679. That $679 would not include any food or theme park tickets.
Those examples aren't an anomaly. Aside from certain newer ships and holiday/school vacation weeks, cruise prices have fallen dramatically compared to where they were in 2019 before the pandemic. When you add in that meals are included (and you can eat as much as you want in a variety of venues), a cruise on Royal Caribbean, Carnival, or MSC offers tremendous value.
That's very good news for people looking to book a cruise, but it's actually a problem (as well as an opportunity) for the industry.
Carnival Sees Pricing as a Problem
The cruise industry has largely focused on building customer confidence back as it has returned from its pandemic shutdown. In a broad sense, Carnival and Royal Caribbean have made filling their ships a higher priority than getting the highest prices, while MSC has generally used low prices to compete with its larger competitors.
That hurts the bottom line, but it does have the side benefit of making cruising very attractive to people who have never done it before. In the long run, that could drive up prices, but Carnival CEO Josh Weinstein addressed the negative of low pricing during the cruise line's second-quarter earnings call.
"We are delivering a great all-inclusive vacation experience, convenient, great dining and entertainment choices, fantastic itineraries, beautiful and innovative ships, and the most amazing onboard teams, providing a hi level of personalized service than you can find anywhere on land or sea," he said. "The issue is we are way too much of a value. We should not be priced at a significant discount to land, which is exactly the case today, anywhere from 25% to 50% based on itineraries."
Weinstein did note that the low pricing has a silver lining.
"About one-third of our guests have historically been new to cruise. And as you probably know, two of the most important drivers of new-to-cruise are word of mouth and advertising," he added.
