Are US Cruise Stocks Setting Sail for an Upward Voyage in 2025?
2024 proved to be an outstanding year for U.S. cruise stocks, significantly catalyzed by the Federal Reserve's rate cuts which lightened the debt burden for cruise operators. This financial relief, coupled with a significant uptick in demand for cruise vacations, spurred substantial gains across the industry. Leading the pack, $Viking Holdings Ltd.(VIK)$ and $Royal Caribbean Cruises(RCL)$
These companies have consistently demonstrated their strength by achieving record-breaking revenues and profitability.
Prospects for Continued Expansion
Heading into 2025, the cruise industry appears well-positioned for continued success. Companies are now harnessing advanced revenue management tools to maximize yields and effectively integrate technology. An identified growth lever is the increase in onboard spending, especially through pre-cruise purchases, which typically translate to higher overall spending during the cruises.
With ongoing investments and a strategic focus on refining these approaches, the cruise sector is poised for further growth. Early booking trends for 2025 and 2026 are already outpacing those of 2024, with projections suggesting that the industry will serve over 37 million passengers globally in 2025, and market revenues are expected to grow by 10% annually. Moreover, the volume of cruise sailings is set to hit a new record in 2025.
According to research from Statista, the global cruise market is expected to grow at a 4.81% CAGR from 2024 to 2029, potentially reaching $53.49 billion in revenue by 2029. User numbers are projected to increase to 46.57 million, with user penetration rising from 0.44% to 0.58% over this period. The average revenue per user (ARPU) is estimated at $1,230, with online sales predicted to make up 24% of total revenue by 2029. The United States is anticipated to lead this market, fueled by a strong demand for luxury cruises.
During the September investor call, Carnival CEO Josh Weinstein reported that 2024 has surpassed company expectations. He noted that nearly half of Carnival's 2025 inventory was already sold, and that 2026 had begun on an "unprecedented" note. Additionally, Carnival achieved a record-breaking revenue of nearly $8 billion in the third quarter, exceeding the previous year's high by $1 billion.
In October, Royal Caribbean announced that both demand and pricing conditions had intensified over the year, with onboard consumer spending consistently exceeding levels from 2023. This robust momentum led Royal Caribbean to increase its financial forecasts four times over the course of the year.
An early December commentary by Truist analyst Patrick Scholes presented a positive forecast for the industry. This outlook was based on discussions with senior travel executives and a comprehensive analysis of "big data" throughout the sector.
"While we tried to find something materially negative to make a contrarian call, the data points continue to look very encouraging, and the conversations were all extremely positive," Scholes wrote.
"Any previous bear case that was posited at the beginning of the year around pricing deceleration proved unfounded, as net yield growth fired on all cylinders, and 2025 is already tracking well ahead of expectations,” analysts led by Lizzie Dove from Goldman Sachs said.
The analysts contend that the improvements in pricing stem from "sustainable, structural changes in industry practices and ongoing incremental pricing advantages, rather than from pent-up consumer demand."
Upcoming Royal Caribbean's Earnings
The Q4 earnings season for cruise stocks is about to begin, with Royal Caribbean set to disclose its quarterly results on January 28. The market expects a 13% revenue growth compared to the same period last year and a 41.8% increase in EPS. Positive guidance for 2025 could further boost enthusiasm for the whole industry.
JPMorgan said that demand for Royal Caribbean remains strong, based on its latest research. The firm highlighted that Royal Caribbean's management is concentrating on "optimizing" its booking curve for 2025. Given this positive outlook, JPMorgan has raised its price target for Royal Caribbean from $253 to $295 and maintained an overweight rating on the stock, citing the potential to surpass Q4 expectations.
In a similar vein, Argus released a research note at the start of the month indicating that Royal Caribbean continues to see strong advance booking trends. The company has experienced a robust beginning to its WAVE season, which spans from Christmas through March, suggesting that demand could lead to higher-than-expected revenue and earnings. Argus is also keeping an eye on potential improvements in margin strength, especially as Royal Caribbean plans to introduce new ships over the next year.
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