By the end of 2023, there was little doubt that contemporary cruise business had once again become a star performer of leisure and hospitality industries.
By Alan Lam
The extraordinary speed and dynamism of the sector’s recovery signal the dawn of another golden age for cruise operators and stakeholders.
The latest full-year performance figures released by the three leading cruise groups – Carnival Corporation & plc (CCL), Royal Caribbean Group (RCG), and Norwegian Cruise Line Holdings Ltd (NCLH) – pointed resolutely at unprecedented and accelerated growth in the sector so soon after the unimaginable crisis it recently endured.
Given the still unfavourable macroeconomic situations around the world, and the complicated geopolitical context, it is debatable as to the real reasons and drivers behind the latest torrent of demand, other than the belief that cruise is a resilient business.
But one thing is certain: the industry continues to be powered by confidence. All stakeholders are in a celebratory mood again, the complete opposite of the recent pervading sense of doom engendered by Covid-19.
The pandemic experience seems to have spurred the sector into growth at a galloping pace. Balance sheets are being repaired and cash flow improved, so much so that cruise lines are now thinking about investing in newbuilds again.
The growth so far has been driven mainly by the traditional markets in North America and Europe. Major cruise brands have been refocusing their strategies in these source markets. There have been increases in deployment in the Caribbean and UK, for example.
But from whichever angle one looks at the picture, the strength of demand cannot be denied, and the prospect continues to brighten, albeit against a darkening background and increasingly uncertain context.
Phenomenal sales
In recent months, it has become commonplace for major cruise groups to regularly report record-breaking revenue and volume performances. Collectively, the three leading conglomerates recorded a total full-year 2023 revenue of $44 billion, a 70% improvement on 2022 and 15% up on 2019. Their brands carried 22.9 million passengers during the year, recording more than 164 million passenger cruise days.
Judging by the forward booking volumes, 2024 is set to be an even better year. “We entered the year with the best booked position we have ever seen, and now have nearly two-thirds of our occupancy already on the books for 2024, at considerably higher prices,” said Josh Weinstein, CEO of CCL. “We continue to experience strong bookings momentum across the board, with our European brands showing remarkable strength during the quarter, with booking volumes running up well into the double digits at considerably higher prices.”
CCL reported a record fourth-quarter revenue of just below $5.4 billion, a nearly 41% improvement on the same period in 2022. For the full year, the group recorded a total revenue of $21.6 billion, 77.5% up on 2022 and beating the previous record, set in 2019, by 3.7%.
“We ended the year on a high note, with another record-breaking quarter that exceeded expectations and achieved positive full-year adjusted net income. In fact, we consistently outperformed in all four quarters of the year, buoyed by a strengthening demand environment across all our brands,” said Weinstein.
RCG reported a $13.9 billion full-year revenue for 2023, a 57.2% improvement on the previous year. It must be borne in mind that this percentage, though it sounds weaker than CCL’s, is a huge improvement by any measure. The difference in accounting dates also distorts the comparison.
“Demand for our brands continues to outpace broader travel as a result of consumer spend further shifting toward experiences and the exceptional value proposition of our products,” said Jason Liberty, president and CEO of RCG. “We have exciting new vacation experiences in 2024, including the game-changing Icon of the Seas, and have entered the year in a record booked position at significantly higher prices, further positioning us for a strong 2024.”
NCLH, the smallest of the trio, reported a full-year revenue increase of 77% compared to 2022 and of 32% compared to 2019, the last record year.
“Norwegian Cruise Line Holdings experienced a momentous year of growth and achievement in 2023,” said Harry Sommer, the group’s president and CEO.
Collectively, the trio achieved a 70% growth in revenue over that of 2022 and 15% over their last record year of 2019.
Source: CCL, RCG, and NCLH
Clearly, strong demand has been the driver behind these figures. CCL’s nine brands carried a total of 12.5 million passengers in 2023, 62.3% more than in the previous year, and recorded 91.4 million cruise days, 67.4% up on the previous year. It also achieved 100% occupancy, compared to 75% in 2022.
RCG’s brands carried 7.65 million passengers in 2023, a 38.1% increase on the previous year. It reported a total of just under 49.6 million passenger cruise days, a 41.4% increase on 2022. The group’s vessel capacity occupancy rate for 2023 was 105.6%, compared to 85.1% for 2022.
NCLH’s passenger number for 2023 was more than 63% higher than the figure for 2022 and slightly higher than that for 2019, its previous record year. Its passenger-cruise-day number was 82% up on 2022 and 13% higher than the previous record figure, set in 2019. The group’s overall vessel capacity occupancy was 102.9% for the full year.
These impressive figures indicate that the three leading cruise conglomerates have moved beyond the recovery phase to a robust growth trajectory.
Source: CCL, RCG, and NCLH
Source: CCL, RCG, and NCLH
Exceptional results
A most noticeable feature of the full-year performance figures for 2023 was that the operating results of all three groups had turned dramatically positive. The net results of RCG and NCLH were also positive.
CCL narrowed its net loss from 2022’s eye-watering $6.1 billion to $74 million in 2023, a considerable achievement in a matter of just twelve months. As expected, its full-year operating result turned positive, from a nearly $4.4 billion loss in 2022 to a $1.96 billion gain in 2023. Its adjusted EBITDA also turned decidedly positive, from a $1.68 billion loss in 2022 to a gain of more than $4.2 billion in 2023 – still 29% lower than the figure from 2019, its last record year. At this pace of recovery, it is not difficult to forecast a new EBITDA record for 2024.
RCG, on the other hand, reported a full-year net income of more than $1.7 billion, compared to a net loss of $2.16 billion in 2022. Incredibly, its EBITDA improved by as much as 676%, from $583 million in 2022 to over $4.5 billion in 2023.
The group’s full-year operating income for 2023 leaped to a new record, beating its 2019 figure by a huge margin of 38.1%.
NCLH’s achievement in this respect was more moderate compared to RCG’s. But it did turn a $2.2 billion net loss into a $160 million net income, although this was still some way off the last record figure of $954.8 million in 2018.
Source: CCL, RCG, and NCLH
Efficiency and cost control also underlined the good performance figures of 2023. The trio’s average operating cost increase was less than 22% for the full year 2023 when compared to both 2022 and 2019.
CCL’s operating expenses and tour costs rose by 21.8% in 2023, a much slower pace than the revenue increase – a healthy sign for the business.
Compared to CCL, RCG’s operating expenses seem to have risen even more slowly, at 17.6% against its 2022 figure.
NCLH’s operating expenses in 2023, however, appeared to have risen faster, at 28% compared to the previous year. More worryingly, when compared with 2019, that figure rose to 49%. In its defence, the group did have three new ships delivered in 2023, which would impact on its operating expenses.
Source: CCL, RCG, and NCLH
*CCL’s figures include tour costs
Despite the higher expenses, the outlook for NCLH remains unusually positive, as it is for its two bigger peers.
“The company continues to experience healthy consumer demand and is at an all-time high booked position and pricing, reflective of some of the best booking weeks in the company’s history, beginning with Black Friday and Cyber Monday,” stated NCLH.
Falling debt
There were also positive and welcoming developments on the debt management front. Overall, the trio managed to reduce their long-term-debt burden by about 8% during 2023.
CCL was able to reduce its long-term debt by 12.2% from the level recorded at the end of 2022. “During 2023, we made debt payments of $6 billion and ended the year with just over $30 billion of debt, which is $3 billion better than we forecasted just nine months ago during our March conference call, and almost $5 billion off the first-quarter peak,” said David Bernstein, CCL’s chief financial officer. “And looking forward, we will continue to evaluate refinancing opportunities and opportunistically prepay additional debt. Furthermore, we expect durable revenue growth to drive increases in adjusted free cash flow in 2024 and beyond, which will be the primary driver for paying down our debt balances on our path back to investment grade.”
RCG managed a moderate 8% reduction in its long-term debt during 2023. NCLH has only been able to reduce its equivalent borrowing by 2.6%. But these are small steps in the right direction. Little by little, they improve the sector’s financial position.
Effective and strategic measures are constantly being implemented to finance debt repayment and servicing, including borrowing at lower rates to pay off more expensive debts.
In February 2024, for example, RCG announced that it had priced a private offering of $1.25 billion aggregate principal amount of 6.25% senior unsecured notes due in 2032. The company intended to use the proceeds from the sales to help redeem the outstanding 11.6% senior notes. Such moves would not only reduce the company’s debt burden but also increase its leveraging power.
As interest rates begin to fall and business performance continues to strengthen, the pace of debt reduction will increase in the months and years ahead.
Dreaming big
Against this background, the sector once again dares to dream big dreams. Ambitious newbuilding programmes have returned to the top of the agenda. Major construction contracts are already being signed, with promises of more to come.
But let’s not forget the threats still facing the cruise industry. Virgin Voyages, for example, was forced to cancel its 2024–2025 Australia season because of the danger of Red Sea transits. MSC Cruises had to move its itinerary from Red Sea to Canary Islands. Mauritius blocked the docking of Norwegian Dawn, carrying more than 2,000 passengers and 1,000 crewmembers, because of a cholera fear.
After surviving the once-in-a-century pandemic experience, none of these events, though potentially catastrophic, will present much of a threat to the now illustrious and confident cruise industry.
