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Cruise Industry Riding on High Demand: 3 Stocks to Benefit
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The cruise industry's toughest days appear to be behind it. The industry demonstrated resiliency on the back of the shift in customers’ preferences toward leisure travel and ongoing demand creation rate.
Pent-up demand for cruise vacations and the fine-tuning of individual brand positioning and marketing initiatives are likely to have opened the way for the addition of more first-time cruise guests. According to the Cruise Lines International Association (or CLIA) report, the number of passengers sailing on cruises is expected to increase by 106% from 2019 levels to 31.5 million. In contrast, the UNWTO predicted in January 2023 that foreign visitor arrivals will be between 80% and 95% of 2019 levels in 2023.
What’s Driving the Industry?
Businesses continue to implement strategic initiatives across their operations to boost operational effectiveness and appropriately size their cost base to rebuild and increase profits. While preserving the outstanding guest experience and superior service levels, they are making conscious efforts to increase margins.
Major cruise companies have deployed strategic investment plans to expand and renew their fleet. This includes luxurious accommodations, world-class dining options, captivating entertainment and a wide range of recreational activities.
Backed by the unique nature of the industry's interconnected financing ecosystem and the efficiency in the respected company’s financial structure, new ships are able to contribute immediately and expected to be important drivers of future earnings growth and margin expansion. According to the CLIA orderbook, 14 new ships that provide fresh itineraries and experiences will be put into service in 2023.
The companies are emphasizing on onboard revenue generation. This serves as a real-time indicator of how consumers are feeling financially. Cruise operators are of the opinion that guests who make pre-cruise purchases tend to spend significantly more than those who do not pre-book onboard activities.
Going by the purview, companies are expanding the number of high-quality touch points they have with their customers (starting at the time of booking) to increase revenues and prepayment before a cruise. These players have started honing their digital performance marketing strategies, perfecting search engine optimization and testing fresh lead creation ideas. They have also emphasized on redesigning websites to increase online traffic, improve conversion and achieve higher pre-cruise onboard sales.
Road Ahead
Although companies are bearing the brunt of a challenging macroeconomic environment, reinvestments in terms of advertisement and sales support are likely to be initiatives placed in the right direction.
The ability to close the occupancy gap (from pre-pandemic levels) and successfully generate demand help these companies lower opaque channel activity and raise ticket pricing to counteract the negative effects of fuel price and currency fluctuations. Notably, much optimism prevails on account of new hardware, a strong pricing environment, and continued growth from onboard revenue areas.
Per the report, the Cruise industry is expected to generate revenues of US$25.14 billion in 2023. By 2027, the market volume is anticipated to hit US$35.87 billion. This represents an annual revenue forecast expansion of 9.29% CAGR (2023-2027).
Investing in the Consumer Discretionary sector might sound profitable right now, it is worth noting that the Zacks Leisure and Recreation Services industry is currently at the top 31% (with the rank of 79) of the 251 Zacks industries, which hints at further growth.
3 Cruise Stocks to Watch Out For
Given the backdrop, here are three cruise stocks that are likely to move higher in 2023. With the help of the Zacks Stock Screener, we have zeroed in stocks that carry a Zacks Rank #1 (Strong Buy) or 3 (Hold). These companies have witnessed a sharp rise in share price in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Image Source: Zacks Investment Research
Royal Caribbean Cruises Ltd. (RCL - Free Report) is poised to benefit from improvements in booking activities, e-commerce enhancements and fleet-expansion efforts. Also, the improved pricing environment and the continued strength in onboard revenue areas bode well. During the first quarter of 2023, the company reported early consumer engagement, with about 2/3 of its guests purchasing onboard experiences before the sailings. This compares with 48% of guests reported in 2019. The company stated that every dollar of pre-cruse spending translates into approximately $0.70 of incremental spend (on board). Secular tailwinds, courtesy of the shift in consumers’ preferences from goods to entertainment and travel spending (24% higher than 2019 levels), added to the positives. The company emphasizes on enhancing its e-commerce and pre-cruise capabilities and optimizing its distribution channels to boost guest repeat rates and spending.
Royal Caribbean currently flaunts a Zacks Rank #1 and has gained 133.3% in the past year compared with the industry’s 15% growth. For 2023, the Zacks Consensus Estimate for RCL’s financial-year sales and earnings per share (EPS) suggests an increase of 48.5% and 162.5%, respectively, from the year-ago period’s levels.
Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) will likely benefit from strong booking activities, occupancy improvement and fleet-expansion efforts. During the first quarter of 2023, the company generated solid booking volumes, courtesy of strong demand in the WAVE season. The company stated that the cumulative booked position for 2023 are higher than 2019 levels. Also, it reported strength in advance ticket sales. As of Mar 31, 2023, the company’s advance ticket sales balance came in at $3.4 billion, up 26% (from the previous quarter’s levels) and 60% (from 2019 levels). The company stated pricing levels to be elevated. The company intends to focus on strategic marketing efforts to drive demand and high-value bookings in the upcoming periods. Also, the emphasis on margin enhancement initiatives, such as corporate overhead reductions, itinerary optimization, supply chain initiatives and rationalization of product delivery, bodes well.
Norwegian Cruise currently carries a Zacks Rank #3 and has gained 44.3% in the past year. For 2023, the Zacks Consensus Estimate for NCLH’s financial-year sales and EPS suggests an increase of 77.3% and 116.6%, respectively, from the year-ago period’s levels.
Carnival Corporation & plc (CCL - Free Report) has been benefitting from strong demand for cruising, bundled package offerings and pre-cruise sales. Also, it stated the benefits of increased advertising activities. During the fiscal first quarter, the company reported solid bookings for the North America and Australia (NAA) and Europe segments. The company stated that its NAA bookings curve mirrored peak 2019 levels, while the European recovery trajectory was more than 80% of 2019 levels. The company stated that its 2023 cumulative advanced booked position is at increased prices compared with 2019 levels. The company intends to focus on strategic deployments (closer to guests’ home itineraries) and shorter-duration cruises to reduce the friction of air travel and boost the booking environment.
Carnival currently carries a Zacks Rank #3 and has gained 45.3% in the past year. For 2023, the Zacks Consensus Estimate for CCL’s financial-year sales and EPS suggests an increase of 72.3% and 93.4%, respectively, from the year-ago period’s levels.
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Cruise Industry Riding on High Demand: 3 Stocks to Benefit
The cruise industry's toughest days appear to be behind it. The industry demonstrated resiliency on the back of the shift in customers’ preferences toward leisure travel and ongoing demand creation rate.
Pent-up demand for cruise vacations and the fine-tuning of individual brand positioning and marketing initiatives are likely to have opened the way for the addition of more first-time cruise guests. According to the Cruise Lines International Association (or CLIA) report, the number of passengers sailing on cruises is expected to increase by 106% from 2019 levels to 31.5 million. In contrast, the UNWTO predicted in January 2023 that foreign visitor arrivals will be between 80% and 95% of 2019 levels in 2023.
What’s Driving the Industry?
Businesses continue to implement strategic initiatives across their operations to boost operational effectiveness and appropriately size their cost base to rebuild and increase profits. While preserving the outstanding guest experience and superior service levels, they are making conscious efforts to increase margins.
Major cruise companies have deployed strategic investment plans to expand and renew their fleet. This includes luxurious accommodations, world-class dining options, captivating entertainment and a wide range of recreational activities.
Backed by the unique nature of the industry's interconnected financing ecosystem and the efficiency in the respected company’s financial structure, new ships are able to contribute immediately and expected to be important drivers of future earnings growth and margin expansion. According to the CLIA orderbook, 14 new ships that provide fresh itineraries and experiences will be put into service in 2023.
The companies are emphasizing on onboard revenue generation. This serves as a real-time indicator of how consumers are feeling financially. Cruise operators are of the opinion that guests who make pre-cruise purchases tend to spend significantly more than those who do not pre-book onboard activities.
Going by the purview, companies are expanding the number of high-quality touch points they have with their customers (starting at the time of booking) to increase revenues and prepayment before a cruise. These players have started honing their digital performance marketing strategies, perfecting search engine optimization and testing fresh lead creation ideas. They have also emphasized on redesigning websites to increase online traffic, improve conversion and achieve higher pre-cruise onboard sales.
Road Ahead
Although companies are bearing the brunt of a challenging macroeconomic environment, reinvestments in terms of advertisement and sales support are likely to be initiatives placed in the right direction.
The ability to close the occupancy gap (from pre-pandemic levels) and successfully generate demand help these companies lower opaque channel activity and raise ticket pricing to counteract the negative effects of fuel price and currency fluctuations. Notably, much optimism prevails on account of new hardware, a strong pricing environment, and continued growth from onboard revenue areas.
Per the report, the Cruise industry is expected to generate revenues of US$25.14 billion in 2023. By 2027, the market volume is anticipated to hit US$35.87 billion. This represents an annual revenue forecast expansion of 9.29% CAGR (2023-2027).
Investing in the Consumer Discretionary sector might sound profitable right now, it is worth noting that the Zacks Leisure and Recreation Services industry is currently at the top 31% (with the rank of 79) of the 251 Zacks industries, which hints at further growth.
3 Cruise Stocks to Watch Out For
Given the backdrop, here are three cruise stocks that are likely to move higher in 2023. With the help of the Zacks Stock Screener, we have zeroed in stocks that carry a Zacks Rank #1 (Strong Buy) or 3 (Hold). These companies have witnessed a sharp rise in share price in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Image Source: Zacks Investment Research
Royal Caribbean Cruises Ltd. (RCL - Free Report) is poised to benefit from improvements in booking activities, e-commerce enhancements and fleet-expansion efforts. Also, the improved pricing environment and the continued strength in onboard revenue areas bode well. During the first quarter of 2023, the company reported early consumer engagement, with about 2/3 of its guests purchasing onboard experiences before the sailings. This compares with 48% of guests reported in 2019. The company stated that every dollar of pre-cruse spending translates into approximately $0.70 of incremental spend (on board). Secular tailwinds, courtesy of the shift in consumers’ preferences from goods to entertainment and travel spending (24% higher than 2019 levels), added to the positives. The company emphasizes on enhancing its e-commerce and pre-cruise capabilities and optimizing its distribution channels to boost guest repeat rates and spending.
Royal Caribbean currently flaunts a Zacks Rank #1 and has gained 133.3% in the past year compared with the industry’s 15% growth. For 2023, the Zacks Consensus Estimate for RCL’s financial-year sales and earnings per share (EPS) suggests an increase of 48.5% and 162.5%, respectively, from the year-ago period’s levels.
Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) will likely benefit from strong booking activities, occupancy improvement and fleet-expansion efforts. During the first quarter of 2023, the company generated solid booking volumes, courtesy of strong demand in the WAVE season. The company stated that the cumulative booked position for 2023 are higher than 2019 levels. Also, it reported strength in advance ticket sales. As of Mar 31, 2023, the company’s advance ticket sales balance came in at $3.4 billion, up 26% (from the previous quarter’s levels) and 60% (from 2019 levels). The company stated pricing levels to be elevated. The company intends to focus on strategic marketing efforts to drive demand and high-value bookings in the upcoming periods. Also, the emphasis on margin enhancement initiatives, such as corporate overhead reductions, itinerary optimization, supply chain initiatives and rationalization of product delivery, bodes well.
Norwegian Cruise currently carries a Zacks Rank #3 and has gained 44.3% in the past year. For 2023, the Zacks Consensus Estimate for NCLH’s financial-year sales and EPS suggests an increase of 77.3% and 116.6%, respectively, from the year-ago period’s levels.
Carnival Corporation & plc (CCL - Free Report) has been benefitting from strong demand for cruising, bundled package offerings and pre-cruise sales. Also, it stated the benefits of increased advertising activities. During the fiscal first quarter, the company reported solid bookings for the North America and Australia (NAA) and Europe segments. The company stated that its NAA bookings curve mirrored peak 2019 levels, while the European recovery trajectory was more than 80% of 2019 levels. The company stated that its 2023 cumulative advanced booked position is at increased prices compared with 2019 levels. The company intends to focus on strategic deployments (closer to guests’ home itineraries) and shorter-duration cruises to reduce the friction of air travel and boost the booking environment.
Carnival currently carries a Zacks Rank #3 and has gained 45.3% in the past year. For 2023, the Zacks Consensus Estimate for CCL’s financial-year sales and EPS suggests an increase of 72.3% and 93.4%, respectively, from the year-ago period’s levels.