Cruising stocks could take investors on a pleasant journey

Cruising into the Caribbean or through the Mediterranean on a giant pleasure ship can be a great way to spend a week with friends and family, but the best deals might not be found on board. While passenger numbers have recovered from pre-pandemic levels, shares in Carnival Corp (NYSE: CCL), Royal Caribbean Cruises (NYSE: RCL) and Norwegian Cruise Line Holdings (NYSE: NCLH) — which together control about 75% of the global, $66 billion market — have remained somewhat sluggish, presenting investors with the prospect for a nice ride as favorable tailwinds propel the industry out of the doldrums.

Norwegian highlighted a number of favorable factors at an investor meeting earlier this month, noting increases in new-to-cruise travelers and growing traffic to websites. Four years after the global pandemic shut down the industry, cruising is back and as popular as ever with 35 million passengers expected to take to the seas this year, and that number is only expected to grow in the years to come.

Perhaps the greatest bellwether for the industry is the simple fact that demand is rising 6% a year while future capacity is only growing 3%, as there are only so many shipyards around the world capable of building the specialized vessels. That all means the major cruise lines – which already enjoy oligopolistic power – should be able to operate at higher occupancy and increase margins while using their vast economies of scale to maintain the value proposition that appeals to budget-conscious consumers facing widespread price inflation across the economy. 

“The demand for cruise vacations continues to be at all-time high, as evidenced by record booking and record advanced ticket sales,” Norwegian CEO Harry Sommer said during a recent earnings call, noting that the company had consequently raised guidance on metrics including adjusted net income. “We continue to see healthy demand across all markets, brands and products.”

Despite all the favorable trend lines, shares of both Carnival and Norwegian have declined so far this year and still remain well below pre-pandemic levels as investors have worried about heavy debt levels. Royal Caribbean, meanwhile, has risen 22% over the same period to top its pre-pandemic high for the first time as it improved its balance sheet, and that suggests further upside could be possible for both Carnival and Norwegian as they work on similar debt reduction programs. In a signal that healthy competition still exists in the industry, shares of Viking Holdings (NYSE: VIK) have risen 23% after the company known for its luxury river cruises held the year’s largest IPO earlier this month.

While it sometimes has a reputation for older travelers, the industry has been making a number of moves to attract younger generations, and the Cruise Lines International Association said in its 2024 report that Millennials are now the “most enthusiastic” about cruising. Niche players like Virgin Voyages have also been experimenting with the changing boundaries of work, tempting digital nomads with high-speed wi-fi and month-long season passes. That all points to solid growth prospects for years to come and could finally prompt investors to get back on board before the latest party ship sails away.