Cruise lines will have to lower prices in the second half of 2022, because cumulative bookings are in a deep hole compared with the current levels, according to a report written by Truist Securities equity research analyst C. Patrick Scholes.
According to data analysis and conversations with large travel agencies specializing in cruise, consumers are responding to the attractive prices/promotions, most notably for sailings within 90 days, especially in light of record room rates for land-based hotels and home rentals. With rising food and fuel costs, prices are nowhere near where cruise lines want them to be.
Travel agency executives speculate that there is a shifting paradigm to give up more on the headline ticket price in order to get people on board to spend.– C. Patrick Scholes, Truist Securities
The good news for cruise lines is that guests are spending more on their cruise vacations than ever before. It is not good news for travel agencies.
Travel agency executives think that people will spend more if they give up more on the headline ticket price. The report said that cruise lines don't have to pay commission to travel agencies on revenue from onboard.
The new year is seven months away, and current booking trends don't look good. He wrote that the booking pace for 2023 continues to decelerate and is significantly below the levels of 2019.
The cruise lines might cut prices to fill ships in the future.
When it comes time for final payment a month out from departure, prices are often not sticking.
Prices are often not sticking when it comes time for final payment a month out from departure," Scholes wrote. "Some prices have dropped by 20% to 30% since the time of the initial booking.– C. Patrick Scholes, Truist Securities
History shows that it takes years for pricing to return to pre-discounted levels.
The travel agency executives said that the cruise lines don't have the power to add fuel surcharges because they don't have the pricing power to do it.
Excess supply may be a factor in falling prices, as supply growth is expected to go up another six to seven percent in the next few years.
According to the report, prices for luxury cruises are holding up better. NCLH is better positioned than Royal Caribbean Group and Carnival Corp. because the luxury segment is about one-third of their business.
The travel agency executives said that NCLH has mostly resisted price discounting. Frank Del Rio has said that NCLH won't discount cruises.
The report noted that demand for mass-market lines will increase when the cruise lines drop their Covid vaccination requirements.
The CDC recently reduced the recommended vaccination threshold for ships, but the reduction has not moved the needle for demand, according to travel agency contacts.
A percentage of people won't go on a cruise until the Covid testing requirement is removed.
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