Demand for booking a cruise vacation is so red hot for Royal Caribbean right now that it's likely we'll continue to see an upward trend in cruise prices.
While there is variability in how cruises are priced, Royal Caribbean sees a willingness on behalf of the consumer to not only book more cruises, but pay more for it. The company had to adjust its earnings forecasts because they're getting more bookings than they expected at higher prices.
During Royal Caribbean Group's second quarter earnings call, Chief Financial Officer Naftali Holtz cited an example of bookings for Caribbean cruises for the coming few months.
Caribbean cruises in the third quarter will make up 42% of all Royal Caribbean Group sailings, and a lot of people are willing to pay more to go on them, "this product is booked ahead in both rate and volume and the strong yield growth is driven by new hardware and higher pricing on existing ships supported by our private destinations."
Translated from financial jargon, that means Caribbean cruises in the next 3 months have more cabins booked than normal, and the company is making more money already because people are willing to pay higher prices due to an investment in newer cruise ships and itineraries that visit Perfect Day at CocoCay.
Willingness to pay more
The top reason why you should expect Royal Caribbean cruise prices to continue to rise is because customers are demonstrating they will pay higher prices.
Looking ahead to the rest of 2024, Royal Caribbean Group CEO Jason Liberty spoke about this trend during the earnings call, "all the yield improvement that you're seeing in Q3 and Q4 is really being driven by price."
"I think it's a really strong indication that not only the willingness to pay more, but these prices continue to increase as we build and manage demand."
To put it in perspective, Mr. Liberty indicated Royal Caribbean Group's revenue for the second half of 2024 is 25% higher than it was in 2019, which was the previous high water mark for the cruise industry.
If 2024 looks positive, 2025 looks even better for the company. They're taking more bookings for 2025 than for 2024, and that means the higher pricing trend will continue into 2025 and beyond.
"The strength in the commentary that we talk about on pricing and pricing increasing, it very much applies to 2025 and beyond," Mr. Liberty explained during the earnings call.
"So we feel very good. We're in a very strong book position for 2025, pricing is up and increasing are the trends that we continue to see."
"I think we feel really good about 2025. The pattern show pricing continues to accelerate."
When you combine sky-high onboard spending, prices, and demand, it's a formula for higher prices on average. That probably means less cheap cruise deals on the horizon.
If you're reading all of this and think surely consumers will buck against the higher prices, it's not something Royal Caribbean sees on the horizon.
One Wall Street analyst asked about "pricing sensitivity" from customers because of comments made by land-based hotel operators. Royal Caribbean rebuffed that notion based on what they're seeing on their end.
Mr. Liberty explained, "the booking window continues to extend, so they're planning further out, their willingness to pay more for these incredible vacation experiences continues to increase."
Part of the reason why he believes cruise bookings are stronger than land vacations is because of the value gap between the two types of vacations, which Mr. Liberty estimates is around 20%.
For consumers, it's a sobering prediction for what the future holds in terms of prices, "the trends that we see is just continued acceleration on the pricing side."
Bargain hunters will need to be agile
While the trend is moving cruise prices higher on average, it's still possible to find an ultra-cheap cruise.
Royal Caribbean prices its cruises largely based on supply and demand, and there are going to be deals out there, especially on sailings that have less demand.
First and foremost, Royal Caribbean will see the highest prices on its newer ships, such as Utopia of the Seas or Icon of the Seas. That's because new ships always command a higher price because they have the latest and greatest features on them.
Generally speaking, you'll find lower prices on older, smaller ships.
As an example, try Adventure of the Seas out of Port Canaveral instead of Utopia of the Seas. Or Freedom of the Seas out of Fort Lauderdale instead of Icon of the Seas.
Some of the best cruise deals are on longer sailings that take place while school is in session. Transatlantic crossings remain some of the best deals from a per-night cost basis.
Transatlantic cruises take place in the spring and fall when cruise ships migrate from North America to Europe and then back again.
Read more: What it's really like to take a transatlantic cruise
The reason they're cheaper is they are longer, usually 10-14 nights, and a lot of families cannot go on vacation for that long a period. Plus, families can't book them because their kids are in school.
The other strategy for a good cruise deal is a bit of luck. Sometimes there's a last-minute cruise deal that pops up, and other times there are specific sailings in the coming months or years that are priced lower.
Spotting these cruise deals can be just plain luck, or you could also rely on a good travel agent that monitors prices during the course of their daily work and can alert you when they spot something good.
Read more: 10 Secrets Royal Caribbean travel agents wish you knew
While I would not expect cruise prices to drop across the board, savvy consumers should be able to find some deals.
But for the newest ships, don't expect a lot of wiggle room. It's why booking early is still the best strategy to get the best price possible on these vessels.
