Cruise ships keep getting bigger and more spectacular. Royal Caribbean, Carnival, and MSC Cruises have all established that the definition of cruise ship — at least in the family market — has changed.
There was a time when "Where are you going?" was the most important question to ask someone before a cruise. The ship was more a place to sleep and a sort of moving hotel. Yes, there were restaurants, bars, pools, and shows, but the ports were the main attraction.
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Royal Caribbean's Oasis-class line, which launched in 2008, changed that. Those ships offered spectacular spaces like the outdoor "neighborhoods" Central Park and The Boardwalk and offered features never before seen on a cruise ship.
That began an arms race that led to Carnival's Excel-class ships, which among other features offer an onboard roller coaster, and MSC Cruise's World Class, which brought the upstart company into the mega-ship game.
All of these giant ships, including the biggest ship in the world, Royal Caribbean's Icon the Seas, had one thing in common. They sailed week-long itineraries when they were introduced.
That made sense as the 7-day market maximizes revenue since it's hard for families to take vacations longer than a week, and it gives passengers enough time to explore the ship. It's a tried and true model that Royal Caribbean International (RCL) has decided to abandon with Utopia of the Seas.
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Image source: Daniel Kline/TheStreet
Utopia of the Seas is only offering short sailings
Icon of the Seas has been selling out at very high prices since it first began sailing out of Miami. Wonder of the Seas, the previous largest cruise ship in the world, had similar success both in Florida and Europe.
The newest Oasis-Class ship, Utopia of the Seas, is not following that traditional pattern. Instead, Royal Caribbean is using it to sail 3-4 day sailings out of Port Canaveral.
That's a strategy Royal Caribbean CEO Michael Bayley spoke about during his company's second-quarter earnings call.
"We know that the on-ramp for cruise is the short product. We've known that for quite some time. We changed up our strategy some years ago with the development of Perfect Day at CocoCay and significant investment in many of our ships that we moved to the short cruise market. And we started to really aggregate that segment of our business," he said.
Basically, using Utopia of the Seas for sailings that all stop at the heavily revamped Perfect Day at CocoCay is the cruise line putting its best foot forward with new customers.
That strategy sacrifices some money in the short term as per-night prices for Utopia bookings are generally lower than what passengers pay on Icon, in exchange for creating new regular cruisers.
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Royal Caribbean courts new cruisers
As Royal Caribbean, Carnival (CCL) , and MSC Cruises all grow their capacity both globally and in Florida, the industry needs new customers. That's an area where Royal Caribbean has been very aggressive.
"The volume of new-to-cruise is significantly higher on short product than it is on longer for very logical reasons...It's just a much easier product to purchase. It's only a few days. It's less investment of time for new-to-cruise. And we found that when you get the product right, you can stimulate it a large amount of demand," he added
And, while Bayley never mentions Disney World or Universal Studios, his remarks make it clear who he thinks Royal Caribbean is competing with for audience.
"I think what we've seen with Utopia is it was a very strategic decision to take a brand new Oasis-class ship that we started to work on some years ago in terms of the product vibe, the energy, what we're offering the customer and placing it into the Port Canaveral, Orlando market, a drive to market, which is significant. It's a great product to put up against what we see in Orlando, and it's easy to package a trip on Utopia as well as maybe a trip to Orlando," he said.
Wall Street agrees. Royal Caribbean shares are up 398% since bottoming in July 2022, when fuel prices peaked. Carnival shares are up 74% in the same time frame.
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So far, he shared, the decision has paid off.
"We've seen the demand has been outstanding for that product, and we're only in the second week of Utopia, and it is literally knocking it out of the park, exceptionally high customer satisfaction, Net Promoter Scores, the onboard revenues being just very strong. We're very pleased with the onboard revenue and guests are booking it," he added.
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