Can Cruise Stocks Resist Macro Noise？

TradingKey - In recent weeks, investors have been selling travel stocks amid growing concerns about a slowdown in consumer spending. There are warnings that discretionary spending may decline as consumers wait to see how the Trump administration’s policies unfold. As a result, once high-flying cruise stocks were expected to face headwinds, much like many other consumer-facing industries.  

However, analysts believe cruise stocks could be an exception. Over the past seven days through Monday, Royal Caribbean Group has gained nearly 6%, Carnival Corp. rose 4.7%, and Norwegian Cruise Line Holdings increased 3.8%.  

Cruise line executives remain confident that macroeconomic concerns will have minimal impact on the industry. Norwegian Cruise Line management stated that demand has shown “no discernible changes,” citing a stable booking curve, steady onboard spending on discretionary categories such as spas and casinos, and unchanged cancellation rates.  

Meanwhile, Royal Caribbean executives expressed “strong optimism” about the company’s outlook, reaffirming the guidance provided during its investor day less than two weeks ago.  

Cruise Customers Differ from Land-Based Travelers  

Cruise customers differ significantly from land-based vacationers in terms of both income and price level. Norwegian Cruise Line’s average customer household income exceeds $200,000, while Royal Caribbean’s stands at approximately $125,000. Higher-income travelers tend to be more resilient to economic uncertainty compared to the broader consumer market.  

From a pricing perspective, cruises remain attractive compared to land vacations. Currently, a cruise vacation is 25%–30% cheaper than a comparable land-based alternative, whereas before the pandemic, the difference was just 10%–15%.  

Furthermore, cruises still represent only a small portion of the overall vacation market, accounting for around 3%–4%, leaving substantial room for growth. The industry has been seeing increasing demand as consumer preferences shift toward cruise vacations over land-based options. According to Kantar, nearly 70% of global travelers are open to taking a cruise.  

Source: JPM; The number of cruise passengers is growing

Continued Strong Demand and Pricing Power  

Norwegian Cruise Line continues to witness robust demand and pricing power, with Alaska, Europe, and the Caribbean among the most sought-after destinations. The Wave Season, which previously began in January, has now started as early as Halloween, demonstrating strong early bookings. According to Truist Securities, cruise prices are currently up by a high-single-digit percentage year-over-year.  

Cruise companies have also been developing private islands to cater to evolving consumer preferences, supporting pricing power. For example, Royal Caribbean’s private island in the Bahamas, Perfect Day at CocoCay, is expected to attract over 3 million visitors in 2024. Similarly, Carnival Cruise Line is developing a private beach destination, Celebration Key, in Grand Bahama Island.  

The industry is increasingly investing in digital marketing and specialized campaigns to attract different demographics. According to the Cruise Lines International Association (CLIA), 73% of Millennials and Gen X travelers are open to cruising. Norwegian Cruise Line, for instance, has been offering shorter and more affordable cruises to increase market penetration among younger travelers.  

Cruise Industry Yet to Be Affected by U.S. Tax Policy 

Earlier this month, U.S. Commerce Secretary Howard Lutnick criticized the cruise industry’s “flag of convenience” status that allows companies to avoid U.S. income taxes. He stated that the Trump administration intends to implement new tax measures targeting the industry.  

However, analysts believe the impact of potential tax changes may be limited. If a new tax scheme affects cruises departing from U.S. ports, major operators such as Carnival, Royal Caribbean, and Norwegian may shift more departures to locations like the Caribbean or Mexico, according to Sharon Zackfia, partner and consumer analyst at William Blair.  

Moreover, analysts note that cruise companies have offsets that could reduce any potential tax burden. Henry Harteveldt, a travel analyst at Atmosphere Research, suggests that if a tax similar to the federal excise tax on airline tickets were introduced, it could lead to fewer cruises departing from U.S. ports and possibly smaller ships operating within U.S. waters.  

Declining Oil Prices Could Lower Costs  

Fuel is a major expense for cruise operators. A sharp increase in fuel costs could pressure profit margins and force higher ticket prices, potentially dampening demand. However, oil prices have declined significantly this year, falling from $80 per barrel at the start of the year to $66 per barrel, which could generate meaningful cost savings for the industry.  

Source: Investing.com; Crude Oil WTI Futures

Given uncertainties surrounding U.S. policy, the Russia-Ukraine conflict, and ongoing instability in the Middle East, oil prices may remain low—a potential tailwind for the cruise industry.